HL Deb 11 November 1976 vol 377 cc819-26

[Nos.27 to 35]

After Clause 13, insert the following new clause:

Appointment and removal of auditors.

—(1) Every company shall at each general meeting of the company at which there are complied with—

  1. (a) the requirements of subsection (6) of section (1) above, or
  2. (b) in relation to any time before the coming into operation of that section, the requirements of section 148 of the Act of 1948 (profit and loss account and balance sheet to be laid before company in general meeting),
appoint an auditor or auditors to hold office from the conclusion of that meeting until the conclusion of the next general meeting of the company at which those requirements are complied with.

(2) Where at any general meeting of a company at which the requirements mentioned in subsection (1) above are complied with no auditors are appointed or reappointed, the Secretary of State may appoint a person to fill the vacancy; and the company shall, within one week of the Secretary of State's power under this subsection becoming exercisable, give the Secretary of State notice of that fact.

(3) The first auditors of a company may be appointed by the directors at any time before the first general meeting of the company at which the requirements mentioned in subsection (1) above are complied with, and auditors so appointed shall hold office until the conclusion of that meeting.

(4) If the directors fail to exercise their powers under subsection (3) above, those powers may be exercised by the company in general meeting.

(5) The directors, or the company in general meeting, may fill any casual vacancy in the office of auditor, but while any such vacancy continues, the surviving or continuing auditor or auditors, if any, may act.

(6) A company may by ordinary resolution remove an auditor before the expiration of his term of office, notwithstanding anything in any agreement between it and him; and where a resolution removing an auditor is passed at a general meeting of a company, the company shall within fourteen days give notice of that fact in the prescribed form to the registrar of companies.

(7) If a company fails to give any such notice as is mentioned in subsections (2) or (6) above, the company and every officer of the company who is in default shall be guilty of an offence and liable, on summary conviction, to a default fine.

(8) The remuneration of the auditor of a company—

  1. (a) in the case of an auditor appointed by the directors or by the Secretary of State, may be fixed by the directors or by the Secretary of State, as the case may be;
  2. (b) subject to paragraph (a) above, shall be fixed by the company in general meeting or in such manner as the company in general meeting may determine.
For the purpose of this subsection "remuneration" includes any sums paid by the company in respect of the auditor's expenses.

(9) Where a company's auditor or auditors are holding office at the date of the coming into operation of this section, nothing in subsection (1) above shall be taken as terminating their appointment, or as requiring either their reappointment or the appointment of other auditors, before the conclusion of the annual general meeting of the company held next after that date; and subsections (1) and (2) above shall apply in relation to that meeting as if it were a general meeting of the company at which the requirements mentioned in subsection (1) above were complied with (whether it is such a meeting or not).

(10) Nothing in subsection (6) above shall be taken as depriving a person removed thereunder of compensation or damages payable to him in respect of the termination of his appointment as auditor or of any appointment terminating with that as auditor.

(11) Section 159 of the Act of 1948 (which is superseded by this section) shall cease to have effect.

(12) The repeal by this Act of subsection (2) of the said section 159 (existing auditors of company normally to be treated as reappointed without the passing of any resolution) shall not affect its operation in relation to any meeting of a company commencing within two months of the coming into operation of this section; and in relation to any such meeting section (Supplementary provisions relating to appointment and removal of auditors) (1) below shall apply also to a resolution providing expressly that a retiring auditor shall not be reappointed.

Insert the following new clause:

Supplementary provisions relating to appointment and removal of auditors.

.—(1) Special notice shall be required for a resolution at a general meeting of a company—

  1. (a) appointing as auditor a person other than a retiring auditor; or
  2. (b) filling a casual vacancy in the office of auditor; or
  3. (c) reappointing as auditor a retiring auditor who was appointed by the directors to fill a casual vacancy; or
  4. (d) removing an auditor before the expiration of his term of office.

(2) On receipt of notice of such an intended resolution as aforesaid the company shall forthwith send a copy thereof—

  1. (a) to the person proposed to be appointed or removed, as the case may be;
  2. (b) in a case within subsection (1)(a) above, to the retiring auditor; and
  3. (c) where, in a case within subsection 1)(b) or (c)above, the casual vacancy was caused by the resignation of an auditor, to the auditor who resigned.

(3) Where notice is given of such a resolution as is mentioned in subsection (1)(a) or ( d)above and the retiring auditor or, as the case may be, the auditor proposed to be removed makes with respect to the intended resolution representations in writing to the company (not exceeding a reasonable length) and requests their notification to members of the company, the company shall (unless the representations are received by it too late for it to do so)—

  1. (a) in any notice of the resolution given to members of the company state the fact of the representations having been made, and
  2. (b) send a copy of the representations to every member of the company to whom notice of the meeting is or has been sent.

(4) If a copy of any such representations as are mentioned in subsection (3) above are not sent out as required by the subsection because received too late or because of the company's default, the auditor may (without prejudice to his right to be heard orally) require that the representations shall be read out at the meeting.

(5) Copies of the representations need not be sent out and the representations need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the court is satisfied that the rights conferred by this section are being abused to secure needless publicity for defamatory matter; and the court may order the company's costs on an application under this subsection to be paid in whole or in part by the auditor, notwithstanding that he is not a party to the application.

(6) An auditor of a company who has been removed shall be entitled to attend—

  1. (a) the general meeting at which his term of office would otherwise have expired, and
  2. (b) any general meeting at which it is proposed to fill the vacancy caused by his removal,
and to receive all notices of, and other communications relating to, any such meeting which any member of the company is entitled to receive, and to be heard at any such meeting which he attends on any part of the business of the meeting which concerns him as former auditor of the company.

(7) Section 160 of the Act of 1948 (which is superseded by this section) shall cease to have effect.

Clause 14, leave out Clause 14.

Clause 15, page 18, line 40, after ("(b)") insert ("if the notice contains a statement under subsection (2)(b) above")

Page 19, line 1, leave out lines 1 to 13 and insert— ("(4) The company or any person who claims to be aggrieved may, within fourteen days of the receipt by the company of a notice containing a statement under subsection (2)(b) above, apply to the court for an order under subsection (4A) below. (4A) If the court, on an application under subsection (4) above, is satisfied that the auditor is using the notice to secure needless publicity for defamatory matter, it may by order direct that copies of the notice need not be sent out; and the court may further order the company's costs on the application to be paid in whole or in part by the auditor, notwithstanding that he is not a party to the application.

(5) The company shall, within fourteen days of the court's decision, send to the persons mentioned in subsection (3) above—

  1. (a)if the court makes an order under subsection (4A) above, a statement setting out the effect of the order;
    2. 823
  2. (b) if the court does not make an order under that subsection, a copy of the notice containing the statement under subsection (2)(b) above.")

Clause 16, page 19, line 33, leave out ("annual")

Clause 16, page 19, line 35, leave out from ("any") to second ("the") in line 36 and insert ("general meeting at which it is proposed to fill")

Clause 16, page 19, line 41, after ("so") insert ("(1)")

Clause 16, page 19, line 42, leave out from ("and") to end of line 45 and insert— ("(ii) send a copy of the statement to every member of the company to whom notice of the meeting is or has been sent")

Lord WINTERBOTTOM

My Lords, with the leave of the House I beg to move that this House doth agree with the Commons in their Amendments Nos. 27 to 35 en bloc. In addition, I should like to speak to Amendments Nos. 65, 72 and 73. Again this is an Amendment of substance. So far as Amendments Nos. 27 and 28 are concerned, these two new clauses supersede Clause 14 and Sections 159 and 160 of the 1948 Act. They make a number of changes which are necessary to overcome certain difficulties discussed in both Houses arising out of the Clause 15 resignation provision. Most of the provisions, however, are not new; they reflect either the existing law or the provisions of Clause 14. Although the new clauses are lengthy, they do not represent major changes to the Bill.

If I may turn now to Amendments Nos. 30, 31, 34 and 35, these are, in the main, drafting and other minor Amendments which facilitate the operation of Clauses 15 and 16. Amendments Nos. 29, 30, 65, 72 and 73 are consequential upon Amendments Nos. 27 and 28. As I have said, most of the provisions in these new clauses appear either in the present law or in the Bill as introduced. I therefore propose to concentrate on the respects in which these Amendments alter the present position. In the debates in both Houses and in consultations about the Bill, it emerged that there were some potential loopholes in the original drafting of Clauses 14 to 16 of the Bill. There were two main problems. Clause 15 requires an auditor who resigns in midterm to make a statement about the circumstances connected with his resignation. I remember that we had an interesting discussion about this at an earlier stage of the Bill.

The purpose of this requirement is to bring to light any relevant facts which may have led to the auditor's resignation and to prevent the auditor who comes across fraud or malpractice from taking the easy way out by resigning and saying nothing. The auditor who completes his term of office but then does not seek re-election is not required to make a statement. In the great majority of cases, there is no need for him to do so because he has completed his audit of the accounts and signed his audit report. If he is not satisfied with the accounts, he will have to qualify his audit report. The audit report therefore achieves the same objectives in these circumstances as the resignation statement.

However, the noble Lord opposite will remember that it was possible under the Bill as originally drafted for an auditor to retire without either completing his audit or making a resignation statement. He just disappeared from sight. This was a serious loophole. The problems arise because at present an auditor's term of office runs until the end of the annual general meeting. Normally, audited accounts are laid before this meeting and, if this is done, no problem arises. But accounts do not have to be laid at the annual general meeting; they can be laid at another meeting. If accounts are not laid at the annual general meeting, the auditor can retire without completing his audit. This is clearly unsatisfactory. I think it was the sense of the House at the time, although I think I argued against it. The first new clause therefore alters the auditor's term of appointment so that in future it will run until the end of the next general meeting at which audited accounts are laid, that is until he has finished the job for which he was appointed. In most cases, the auditor will still retire at the annual general meeting but this Amendment will close the loophole and will ensure that whenever an auditor ceases to hold office, he will either have completed his audit report or will have made a resignation statement. I beg to move.

Moved, That the House doth agree with the Commons in the said Amendments—(Lord Winterbottom.)

Lord LYELL

My Lords, as the noble Lord has said, these form a major series of Amendments although they are in effect technical, but we are very grateful that the noble Lord and the Government have been able to fill what we regarded as a loophole. If it was not often used there were two minor instances which gave rise to concern over the last 20 years. We are very grateful that the noble Lord has been able to meet our requests on this particular matter.

I should like to ask the noble Lord a question in respect of the second new clause, Amendment No. 28, the supplementary provisions. In subsection (4) of the new clause, and subsection (5) particularly, we still have considerable reference to needless publicity for defamatory matter. In view of some major reports that have appeared in the course of the past summer we are a little worried that this provision appears to be given a great deal of importance and could provide a small peg (if I may call it that) on which to hang the possibility of a law suit for defamation when a particular individual or group feel that they have been wronged as far as an auditor presenting his report is concerned.

However, in view of what the noble Lord has produced for us, and in view of the amount of ground that the Government have covered, we would not wish to probe too deeply into these matters, but it would be gratifying if the noble Lord could indicate that the Government are still continuing to look into such matters because we feel it could be a brake on proper and adequate financial disclosure.

Lord WINTERBOTTOM

My Lords, as this is the first time that I have dealt with Commons Amendments I am not certain how much the Government can do at this point. I have a feeling that since it has been through both Houses we either have to agree or disagree and see how it works out in practice. I do not think this is a point at which one can do much other than to accept or reject the Commons Amendments. I do not think I can give an undertaking. I do not think there is anything in between, but I will think about it.

Perhaps it would be helpful to people in understanding the Bill, which is a different thing, if the noble Lord could just touch on the points in subsections (4) and (5) of Amendment No. 28. Subsection (4) says: If a copy of any such representations as are mentioned in subsection (3) above are not sent out as required by that subsection because received too late or because of the company's default, the auditor may (without prejudice to his right to be heard orally) require that the representations shall be read out at the meeting. What was the fear of defamatory matter at this point?

Lord LYELL

My Lords, may I offer my apologies? It was my note on the Bill which was in error. In fact, it is subsection (5) which contains, so far as I seem to remember it, the quotation that has been in the 1948 Act. I do not think necessarily it is out of date in any way, but the noble Lord, Lord Winterbottom, has already quietened my fears. The noble Lord said that even at this stage he was still able informally to think about it, and so far as we are concerned, there is no difference at all. We are grateful for this subsection and others. I hope I was not scratching at too minor a detail. Nevertheless, it seemed to me to be something worthy of comment. As the noble Lord knows, we are continuing to discuss these matters and I understand later this year and earlier next year we are likely to have more weighty debates on this subject. I had no intention of trying to he difficult or appearing to be ungrateful after these two major clauses have been produced by the Government.

10.52 p.m.