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Company Law Reform Bill [HL]

Amendments Nos. 302 to 305 all seek to amend Clause 382, ““Information about related undertakings””. It might be helpful to my noble friend Lord Lea of Crondall if I say something about it. It gives the Secretary of State power to make regulations requiring information about related undertakings to be disclosed in the notes to a company’s annual accounts. The Government intend to make regulations under this clause to replace Schedule 5 to the 1985 Act. The regulations apply whether or not a company has to produce group accounts, but there will be—as under Schedule 5—different disclosure requirements in each case. My noble friend has explained that Amendment No. 302 is intended to tighten up subsection (2)(b) to provide that regulations made under this clause must include information about all subsidiary companies and certain qualifying bodies corporate, trusts or other undertakings. In framing the regulations to be made under the clause, we will be looking at what it is important to include for accounting purposes. As I have said, the Government’s intention is that the new regulations under this clause will substantially mirror the current provisions of Schedule 5. Schedule 5 covers a large amount of the information sought by my noble friend; thus it requires the disclosure of the names and locations of subsidiary undertakings. It also covers joint ventures, associated undertakings and other significant holdings. It is true that trusts are not specifically covered in Schedule 5, but the Companies Act is not the whole story. Accounting standards—which are a more flexible instrument than legislation—also require disclosures to ensure that all appropriate information from an accounting perspective is given. For example, a company preparing group accounts under UK GAAP will need to consolidate trusts qualifying as quasi-subsidiaries under Financial Reporting Standard 5, which requires lengthy disclosures relating to the trust. Further, the urgent issues task force of the Accounting Standards Board has issued UITF abstract 38 on accounting for employee share ownership plan trusts. This requires the disclosure of information sufficient to enable readers to understand the significance of the ESOP trust in the context of the sponsoring company. Trusts relating to pension schemes of a company are subject to the disclosure requirements of accounting standards. Amendments Nos. 303 to 305 seek to amend subsection (3), which re-enacts Section 231(3) of the 1985 Act. This subsection authorises the omission from the notes to the accounts of information in respect of undertakings established outside the UK, or which carry on business outside the UK, where the directors consider that disclosure would be seriously prejudicial to the business of that undertaking or to the business of the company or any of its subsidiary undertakings. The Secretary of State must agree to this omission. My noble friend referred to the possibility of this being used to avoid tax obligations in another jurisdiction. It is difficult to see the Secretary of State agreeing to an omission on those grounds. The exemption is infrequently used, perhaps because of the need to disclose that the exemption has been used—a condition required by the directives—and the need to obtain the approval of the Secretary of State. As to whether Clause 383 should stand part, it re-enacts subsections (5) to (7) of Section 231 of the Companies Act 1985 in providing an alternative method of compliance with the information about related undertakings to be required to be given in the notes to the accounts by Clause 382, and the regulations to be made under it. As I have said, we intend to re-enact the provisions of Schedule 5 in regulations under Clause 382. Clause 383 re-enacts Section 231(5) of the 1985 Act in enabling the directors of a company to give limited information about its related undertakings, where to give the full information,"““would result in information of excessive length being given in notes to the annual accounts””." In order to comply with Article 43(2) of the fourth Company Law Directive, companies must nevertheless give in the accounts the information for those of its related undertakings that principally affect its figures. They must also give the information for those undertakings excluded from consolidation. Where a company takes advantage of this derogation, Clause 383(3), re-enacting Section 231(6), requires that the company first disclose the fact in the notes to its accounts, and secondly annex the full information to the company’s ““next annual return””—that is, the annual return next delivered to the registrar after the relevant accounts have been approved by the board of directors under Clause 387. It is important that this information should be given somewhere, because there is a public interest in its disclosure—for example, in the context of company investigations. However, we see no need to remove the flexibility that this confers on companies, and I therefore hope that noble Lords can withdraw their opposition to the clause standing part. In summary, I understand my noble friend’s concerns. However, these provisions could not generally be used in the way he fears and we will certainly look at that should there be an issue.