Corporate Law Update

This week we focus on proposals by the Financial Reporting Council to update its guidance on a company’s strategic report.

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FRC consults on amendments to strategic report guidance

The Financial Reporting Council (FRC) has announced that it has published a consultation (in the form of an exposure draft) on proposed amendments to its 2014 Guidance on the Strategic Report (the “Guidance”).

The purpose of the amendments is to reflect the enhanced disclosure large companies must now make for financial years beginning on or after 1 January 2017 under the recent non-financial reporting regulations (incorporated into sections 414CA and 414CB of the Companies Act 2006). These regulations require certain companies to include information on the environment, employees, social matters, human rights and anti-bribery in their strategic report. For more information, see our update for the week ending 6 January 2017.

The FRC has also said the amendments reflect its desire to improve the effectiveness of section 172 of the Companies Act 2006. This requires a company’s directors to promote the success of the company, having regard to certain factors, including the consequences of decisions in the long term, employees, relationships with customers and suppliers, and the impact on the community and environment.

The proposed changes to the guidance include the following (as well as numerous more detailed and specific recommendations):

  • The strategic report should state how the directors complied with section 172 and had regard to the matters listed in that section. It may need to include factors not listed in section 172.
  • Companies should provide information on the relationships that are most important to their ability to generate value and explain how they take them into account when making decisions.
  • Boards should think beyond merely the community and environment and consider the impact of decisions on “society more widely”, as this may affect a company’s success in the long term.
  • The strategic report should include information on sources of value not recognised in the accounts, including how they are managed and developed. This might include the company’s workforce, intellectual property or internally generated intangible assets.
  • Companies should consider all significant shareholder groups when deciding whether information is material and so needs to be included in the strategic report.
  • The test of materiality should not necessarily focus on a numerical figure for materiality adopted for the purpose of the audit report. A lower figure or separate analysis may be warranted.
  • In order to communicate information to enable shareholders to assess their long-term success, companies may need to look beyond their strategic planning horizons.

A mark-up of the proposed changes can be found here. The FRC has asked for comments by 24 October 2017.

Companies House to issue refunds for certificates

Companies House has confirmed that it will be issuing refunds to anyone who has paid for a certificate of registration or incorporation for any of the following entities:

  • Overseas companies
  • European public limited liability companies (Societates europaeae or SEs)
  • Unregistered companies

The announcement states that Companies House does not have the legal power to issue certificates for these kinds of entity.

There is no time limit for claiming the refund. To apply, an applicant must send proof of purchase and a request for a refund to Companies House at the address stated in the announcement. If the certificate was purchased through a third-party supplier, an applicant should contact that supplier instead.

Refunds vary from £15 to £50 per certificate, depending on the nature of the certificate provided. More details are set out in the announcement.