Changes to the reporting requirements for larger companies come into force in January 2019, as part of a revisions to the Companies Act 2006 (CA 2006) under The Companies (Miscellaneous Reporting) Regulations 2018 which extends reporting requirements to the strategic report, corporate governance and executive pay
The Companies (Miscellaneous Reporting) Regulations 2018 SI 2018/860 comes into force with effect from accounting periods effective 1 January 2019.
The Regulations amend the reporting requirements set out in Companies Act 2006, Pt 15. Pt 2 (reg 3 to 6), providing a new requirement to include a statement in the strategic report on how the directors have complied with s172, effectively the duty to promote the success of the company, when conducting their duties.
It also extends the requirement for companies to communicate their corporate governance arrangements to large private companies; and to increase transparency over executive pay.
The main reform is to s172 and this covers the six criteria set out in CA 2006, section 172(1)(a) to (f), stating that a director of a company must act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. They must consider the following:
(a) the likely consequences of any decision in the long term;
(b) the interests of the company's employees;
(c) the need to foster the company's business relationships with suppliers, customers and others;
(d) the impact of the company's operations on the community and the environment;
(e) the desirability of the company maintaining a reputation for high standards of business conduct; and
(f) the need to act fairly as between members of the company.
Subsection (1) does not apply if the company qualifies as medium-sized in relation to that financial year under sections 465 to 467).
This requirement applies only to companies meeting at least two of the following three criteria:
- turnover exceeding £36m;
- total assets exceeding £18m; and
- more than 250 employees.
Small companies are completely exempt from the rules as they are not required to produce a strategic report.
A further section, s426B CA 2006, requires all companies preparing a s172(1) statement to make it available on their website, where it must remain until replaced by the following year’s statement.
The regulations come into force on 1 January 2019 and apply to the financial years of companies beginning on or after 1 January 2019.
SI 2018/860 - The Companies (Miscellaneous Reporting) Regulations 2018
Report by Sara White