By the end of this chapter you should be able to:

image  Identify the key public disclosures required of registered companies under the Companies Act 2006

image  Distinguish core company law public disclosure requirements from securities regulation disclosures required pursuant to the Financial Services and Markets Act 2000

image  Understand which basic accounts, reports and statements registered companies are required to prepare

image  Discuss the extension of public disclosure into narrative reporting Understand the rationale for the audit process and the role of the auditor

image  Discuss the legal basis of auditor liability to the company and third parties and the statutory limits on the ability of auditors to limit their liability Discuss the powers and procedures available to the government to investigate registered companies and when those powers are in practice exercised


‘Sunlight is said to be the best of disinfectants.’

Louis Brandeis, ‘What publicity can do’ Harper’s Weekly (1913)

17.1 Introduction

Obligatory disclosure of reliable information by registered companies pursuant to the Companies Act 2006 is an important pillar of core company law. The forfeiture of confidentiality it entails is sometimes characterised as the price paid for limited liability by those who choose to run their businesses through companies. Disclosure obligations are imposed on limited liability partnerships for the same reason.

The Companies Act 2006 and regulations made pursuant to it impose a range of obligations aimed at providing shareholders, creditors and the general public with access to information about the company. The law is very technical and detailed. Different obligations apply to different types of companies (e.g. small, medium and large companies, unquoted and quoted companies, traded and untraded companies). By way of example, directors’ remuneration reports must be prepared by the directors of quoted companies only (see Chapter 9 at section 9.3.4). Also, different levels of access and disclosure apply to different types of information and to different groups (basically, shareholders, creditors and the public). Added to this, the rules are sometimes expressed to be obligations of the company, sometimes obligations of the directors. Transparency obligations include:

image  keeping records (including registers and copies of key documents);

image  preparing accounts, reports and registrar returns;

image  making available for inspection certain records, accounts and reports;

image  providing copies to shareholders (some on request, others as a matter of course);

image  providing copies to creditors (some on request, others as a matter of course);

image  filing copies with the registrar.

Almost all information filed with the registrar is publicly available. An example of information filed with the registrar that is not available to the public is certain personal information about directors. Since the advent of electronic communication, the law generally permits the communication of information, including filing documents with the registrar, by email. Certain types of companies are also required to make certain information available on the company’s website.

Beyond core company law disclosures, additional disclosure obligations apply to companies with securities admitted to trading on a stock exchange. Different levels of disclosure apply depending upon to which particular stock exchange and market a company’s securities are admitted to trading. Additional disclosures, beyond those required by the Companies Act 2006, will be required either by law (the Financial Services and Markets Act 2000 and rules promulgated by the Financial Services Authority pursuant to that Act, including the Disclosure and Transparency Rules), by the rules of the market (such as the London Stock Exchange Admission and Disclosure Standards) or, usually, by a combination of both.

The UK Corporate Governance Code (‘the Code’) exists in the grey area between enacted law and industry self-regulation. No company is obliged as a matter of law to comply with the Code. However, a company (whether a UK or overseas company) with a Premium Listing of its equity shares on the London Stock Exchange Main Market is subject to the highest level of public disclosure (based on the law) and is required to comply with Listing Rules 9.8.6R(5) and (6). These two paragraphs contain what is referred to as the ‘comply or explain’ obligation. LR 9.8.6R(5) requires a company to include in its annual financial report a statement of how the company has applied the Main Principles set out in the Code, in a manner that would enable shareholders to evaluate how the principles have been applied. LR 9.8.6R(6) requires a company to include in its annual financial report a statement as to whether the company has complied throughout the year with all relevant provisions set out in the Code or not and, if it has not, the provisions it has not complied with, the period within which it did not comply and the company’s reasons for non-compliance.

The various levels of public disclosure imposed by securities regulation are beyond the scope of this book. Only a very brief outline of the scheme of periodic disclosure imposed by the Disclosure and Transparency Rules (DTR) as well as the obligation to disclose price-sensitive information is included in section 17.3.

We focus in this chapter on public disclosure mandated by the Companies Act 2006 and we examine the role of auditors as independent professionals who, through the audit process, monitor the integrity of principally financial information disclosed by companies. Finally, because they are an important part of protecting the public interest, we look at the powers of BIS to investigate companies. Rather than having been consolidated into the Companies Act 2006, these powers remain in the Companies Act 1985, as amended.


The London, Edinburgh and/or Belfast Gazette published by The Stationery Office which comes out every business day and in which formal announcements concerning companies are made, such as when a winding-up order is made or when a winding-up resolution is passed

register of members

A statutory register that has to be maintained by all companies containing a definitive list of members of the company

17.2 Public disclosure under the Companies Act 2006

Public disclosure has been an important part of core company law since registration of companies was first made available in 1844. Pursuant to the Companies Act 2006, the public has access to information about companies from various sources:

image  Companies House, where information in all documents required to be delivered to the registrar is kept, on ‘the register’ (s 1080), and may be inspected by the public (s 1085) subject to the limited exceptions to public inspection set out in s 1087 (see, in relation to directors’ residential addresses, section 9.3.3);

image  a company’s registered office (or other notified place) at which it keeps its registers and other documents it is required to make available for public inspection;

image  a company’s website (electronic communication of information is increasingly important);

image  the Gazette (London, Edinburgh and Belfast editions), in which the registrar is required to place notices of receipt of certain documents, namely those subject to ‘Directive disclosure requirements’ (see s 1078).

Disclosure in relation to particular activities is covered in this book where that activity is dealt with, for example, the removal and appointment of directors (see section 9.3.3). Here, we deal with the registers a company is required to keep and make available to the public for inspection and the main annual filings: the annual return and the annual accounts and reports. The Small Businesses, Enterprise and Employment Bill 2014–15 (SBEEB 2014–15) includes a number of proposed reforms to the filing obligations of companies motivated by releasing business from unnecessary red tape.

17.2.1 Company registers available for public inspection

Companies are required to keep the following registers and make them available for inspection by members of the public:

image  register of members (ss 113–121, subject to protections, see below);

image  register of directors (s 162 and see section 9.3.3);

image  register of secretaries (s 275) (if the company has a secretary, see section 9.4);

image  public companies only: register of interests disclosed to it in the context of a company investigation (ss 808 and 809, see section 17.5).

If a company keeps a register of debenture holders (which it is not required to do, even if it has issued debentures), it must make it available for inspection subject to similar protections as those applicable to inspection of the register of members (s 743).

A person seeking to inspect the register of members or debenture holders must provide the company with his name, if he is seeking the information in an individual capacity, or the name of the organisation seeking the information, the purpose for which the information is to be used and whether or not it will be disclosed to any other person and, if so, the same information in relation to that or those other persons (ss 116 and 744). A company must comply with a request to inspect or apply to the court for an order that the information is not sought for a proper purpose (ss 117 and 745).

Public companies are also required to keep copies of contracts for the purchase of its own shares available for inspection by the public (private companies need only make such contracts available to shareholders) (s 702).

As part of the reforms proposed to honour the government’s commitment made at a G8 Summit in 2013 to introduce measures to enhance corporate transparency to tackle misuse of companies, Pt 7 and Sched 3 of the SBEEB 2014–15 contain provisions which, if enacted, will insert a new Pt 21A and Sched 1A into the Companies Act 2006 requiring companies to keep a register, open to the inspection of any person without charge, of people who have significant control over the company. The proposed new Sched 1A sets out conditions, satisfaction of any one of which will render an individual a person with ‘significant control’ over the company. The key to significant control is control (direct or indirect) of 25 per cent or more of the shares or voting rights of the company, or the right to appoint or remove a majority of the board of a company, in either case, either alone or pursuant to joint arrangements.

annual return

A document in prescribed form which every registered company is required to file with the registrar of companies on an annual basis pursuant to the Companies Act 2006 s 854, containing basic information about the company

summary financial statement

A shortened form of the annual report and accounts of the company which may be circulated to shareholders instead of the full report. All companies have the choice of issuing summary financial statements

17.2.2 Annual filings

Annual returns

The SBEEB 2014–15 contains a proposal to remove the obligation to file annual returns and replace it with an obligation to deliver a confirmation statement. Until the law changes, a company must make an annual return on a prescribed form to the registrar (s 854) and pay a nominal fee. The information to be contained in the return is (ss 855, 856, 856A and 856B):

image  registered office address;

image  type of company it is and its principal business activities;

image  the names of directors at any time in the preceding year;

image  the name of the company secretary at any time in the preceding year;

image  any address different from the registered office at which the register of members or other records are kept;

image  a statement of capital;

image  a list of shareholders, their shareholdings and changes thereto (a full list is only required every three years and special rules apply to traded companies);

image  a statement as to whether any of the company’s shares were admitted to trading on a relevant market.

The Secretary of State has power to make regulations changing the information to be contained in annual returns (s 857) and has recently used this power to make the obligation to supply details of shareholders less onerous for companies with traded shares (see s 856B and the Companies Act 2006 (Annual Returns) Regulations 2011 (SI 2011/1487)).

Accounting records and annual accounts and reports

Accounting records

Companies must keep accounting records sufficient to (s 386):

image  show and explain the company’s transactions;

image  disclose the company’s financial position with reasonable accuracy;

image  enable annual accounts to be drawn up in accordance with the Act.

statutory accounts

The individual or group accounts which are required to be filed with the registrar of companies which may be full accounts or, where permitted, abbreviated accounts

Reports and Accounts

The directors of companies must prepare annual accounts and reports (ss 394 (individual accounts), 399 (group accounts), 414A (strategic report), 415 (directors’ report) and 420 (directors’ remuneration report)), and send them to shareholders (s 423) and the registrar (s 441). A small company is exempt from sending its directors’ report to the registrar (s 415A and 444). In certain circumstances the strategic report together with supplementary material can be sent to shareholders in substitution for a company’s full accounts and reports (s 426 and 426A), although a full copy of the accounts and reports must be sent to any shareholder who wishes to receive one. The contents of the strategic report are considered below under narrative reporting. The accounts that a company must file under the Companies Act 2006 are in practice often referred to as the statutory accounts.

Public companies (which includes all quoted companies) are required to lay accounts and reports before a general meeting (s 437), and quoted companies must additionally make them available on their website (s 430). Quoted companies are also required to propose an ordinary resolution at the meeting at which accounts are laid approving the directors’ remuneration report other than the part containing the remuneration policy (s 439). This resolution is purely advisory and no remuneration is conditional upon the resolution being passed (s 439(5)). Additionally, every three years, a quoted company must propose an ordinary resolution at the meeting at which accounts are laid approving the directors’ remuneration policy (s 439A). The resolution regarding the policy is not advisory: a company may only pay remuneration to its directors in accordance with a policy approved in advance by shareholders (see also Chapter 9).

Helpful tables summarising the accounts and reports filing requirements for different categories of companies is contained in the FRC ‘Guidance on the Strategic Report’ (June 2014) which can be accessed via the FRC website.

Individual company accounts

The annual accounts and reports are:

image  a profit and loss account;

image  a balance sheet;

image  notes to the accounts (i.e. to the above two);

image  a directors’ report;

image  a strategic report (all companies except small companies);

image  a directors’ remuneration report (quoted companies only, see section 9.3.4);

image  a corporate governance statement (companies subject to DTR 7.2 only and usually contained in the directors’ report although it can be a separate document);

image  an auditor’s report (unless the company is exempt from audit, see below).

Group accounts

If a company is a parent company it must prepare group accounts covering all the companies in the corporate group (s 399), unless:

image  all its subsidiaries are excluded from consolidation (s 402); or

image  it is a member of a larger group (in which case the obligation to prepare group accounts rests with the ultimate parent company (ss 399(2)–401)).

When required, group accounts are prepared in addition to individual company accounts. They consist of a consolidated profit and loss account, balance sheet and notes thereto.

Auditors and the auditing of reports are considered at section 17.4 after considering an important trend in annual reporting. Historically, public disclosure focused on financial information set out in annual accounts and reports. The trend, however, is to require more extensive information about companies to be publicly available. Reporting of non-financial information is referred to as ‘narrative reporting’, a subject that has proved to be very controversial.

Narrative reporting

The government’s goal to put a new framework for narrative reporting in place was realised in August 2013 with the enactment of the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 (SI 2013/1970). The new regulations amend Pt 15 (Accounts and Reports) of the Companies Act 2006 and the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410) and are applicable to financial years ending on or after 30 September 2013. At the request of BIS, the Financial Reporting Council (FRC) has issued non-mandatory guidance as a best practice statement. The FRC ‘Guidance on the Strategic Report’, June 2014, is available on the FRC website and is a very helpful document for those who wish to understand the non-financial information different types of companies are legally required to include in their annual reports (see Table 1 of the report in particular).

The strategic report replaces the business review. Its purpose is stated in s 414C to be to inform shareholders and help them assess how the directors have performed their duty under s 172 to promote the success of the company. Section 414C proceeds to set out the information that must be contained in the strategic report. To protect confidential information, it emphasises that no disclosure of information about impending developments or matters in the course of negotiation is required if the disclosure would, in the opinion of the directors, be seriously prejudicial to the interests of the company (s 414C(14)).

Small companies are not required to prepare a strategic report and the range of matters to be included increases depending upon whether the company is a medium-sized company, a large, unquoted company or a quoted company. Essentially, a strategic report must contain:

Medium-sized, large and quoted companies

image  A fair review of the company’s business; and

image  a description of the principal risks and uncertainties facing the company.

The review required is a balanced and comprehensive analysis, consistent with the size and complexity of the company, of the development and performance of the company’s business both during the financial year and at the end of the year.

Large and quoted companies

To the extent necessary for an understanding of the development, performance or position of the firm’s business:

image  analysis using financial key performance indicators (KPIs); and

image  analysis using other KPIs including information relating to environmental matters and employee matters.

Quoted companies

image  To the extent necessary for an understanding of the development, performance or position of the firm’s business:

image  the main trends and factors likely to affect the future development, performance and position of the firm’s business; and

image  information about:

image  environmental matters,

image  the company’s employees,

image  social, community and human rights issues, including information about any policies of the company in relation to those matters and the effectiveness of those policies.

image  A description of the company’s strategy.

image  A description of the company’s business model.

image  A breakdown showing at the end of the financial year the number of persons of each sex who were directors, senior managers and employees of the company.

An example of how companies are complying with the new strategic report requirements can be seen by downloading the BT Group plc 2014 annual report from its website (or any other annual report of a company for a year ending on or after 30 September 2013).

The European Commission has published a controversial proposal for a directive as regards disclosure of non-financial information and board diversity information by certain large companies and groups (COM(2013) 207), which enhances transparency by amending the fourth and seventh Company Law Directives. It follows two resolutions of the European Parliament on corporate social responsibility and aims to increase the quality, scope and comparability of non-financial information disclosed by certain companies. The proposal represents a compromise. Transparency to enhance shareholder rights and transparency to enhance corporate social responsibility are driven by different political philosophies and in April 2014 the European Commission launched a consultation on the impact of its CSR strategy and the role it should play in the future.

17.3 Public disclosure under the Financial Services and Markets Act 2000

In addition to Companies Act 2006 disclosure requirements, disclosures are imposed on some companies by rules promulgated by the Financial Services Authority (FSA) pursuant to the Financial Services and Markets Act 2000. Precisely which disclosure rules apply to which companies is complicated but for our purposes, because we are looking at this only at a high level, we will focus on companies with shares traded on the Main Market of the London Stock Exchange (all of which have shares listed on the official list as this is a pre-condition to securing admission to the Main Market).

The requirements are found primarily in the Disclosure and Transparency Rules (DTR). The basic regime for periodic disclosure and disclosure of inside information provided for in those rules is set out briefly in this section.

For companies with Premium Listings, rather than Standard Listings on the Main Market, a higher level of disclosure is required. Most of these additional disclosures are required by the UK Corporate Governance Code (September 2012) (‘the Code’). As stated in the introduction to this chapter, compliance with the Code is not mandatory but a company with a Premium Listing on the Main Market is required to include a statement in its annual report and accounts of how it has applied the Main Principles of the Code, whether it has complied with the provisions of the Code and, if not, the parts with which it has not complied and an explanation why it has chosen not to comply (the ‘comply or explain obligation’). The statutory footing for the comply or explain disclosures is Listing Rules 9.8.6R (9.8.7R for overseas companies).

17.3.1 Periodic disclosure

Annual financial report (DTR 4.1.3)

Within four months of the end of the financial year the company must make public an annual financial report including:

image  audited financial statements;

image  a management report;

image  responsibility statements.

Half-yearly financial reports (DTR 4.2.2)

Within two months of the end of the period, a company must make public a half-yearly report including:

image  condensed set of financial statements;

image  an interim management report;

image  responsibility statements.

Interim management statements (DTR 4.3.2)

A company must make public, between weeks 11 and 20 of each half-year period, i.e. effectively quarterly, an interim management statement providing:

image  an explanation of material events and transactions that have taken place during the relevant period and their impact on the financial position of the issuer; and

image  a general description of the financial position and performance of the issuer during the relevant period.

price-sensitive information

Information which would, if made public, be likely to have a significant effect on the price of particular securities

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