COMMONS AMENDMENT (Hansard, 7 November 1989)

§ Lord Trefgarne

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 12. With the permission of your Lordships, I should like to speak at the same time to Amendment No. 23.

These amendments relate to a recommendation in the Dearing Report on the making of accounting standards that the criminal sanction in Section 245 of the Companies Act for laying or delivering defective account should go. This change is closely linked to other Commons amendments which give effect to recommendations in the Dearing Report. This is perhaps therefore the most suitable opportunity to outline progress towards establishing the new structure for the making and enforcement of accounting standards since this Bill was last before your Lordships' House in April. Although the new structure proposed by Dearing does not require legislation it is fundamental to an understanding of the whole. With permission, I should like to do so before I turn directly to these amendments.

589 The Government and the accounting profession are in agreement that the structure proposed in the Dearing Report is the right way forward and that the need is to set that structure in place as soon as possible. We have acknowledged a role for government in bringing this about though, equally, we are clear that government should not at the end of the day dominate the arrangements for setting and enforcing standards.

Following consultations with interested parties we concluded that the best way to make rapid progress was to appoint an implementor to negotiate with interested parties and finalise the arrangements for setting up the new structure. As noble Lords will be aware, my honourable friend the Under-Secretary of State for Corporate Affairs announced on 25th October that Sir Ronald Dearing had accepted an invitation to take on that role, as chairman designate of the Financial Reporting Council. His task is to carry forward negotiations with all concerned so that the new arrangements for accounting standards will be in place next summer. He has already announced the formation of a small task group to negotiate the finance and to develop detailed proposals. We can think of no one better than Sir Ronald to carry through this task. His appointment was warmly welcomed on both sides in another place and I am sure noble Lords will join me in doing so again and wishing him well in the task of enhancing the role of accounting standards and improving company reporting.

As my honourable friend also announced, once the body is established it is the intention of my right honourable friend the Secretary of State for Trade and Industry, acting jointly with the Governor of the Bank of England, to appoint Sir Ronald formally as chairman of the council.

I turn now to the legislative aspects of the Dearing Report. Noble Lords will recall that my noble friend the then Secretary of State for Trade and Industry, Lord Young of Graffham, welcomed the Dearing Report on behalf of the Government in our earlier debate on this Bill. He gave a commitment that, following analysis of responses to the consultative document which my department issued in January, the Government would bring forward the necessary amendments to give effect to the recommendations which required legislation following the completion of consultation. This group of amendments —and two further groups which we will come to shortly—fully meet that commitment.

Turning to the amendments before us, these concern the criminal sanctions where annual accounts are approved which do not comply with the requirements of the Act. They must be seen as part of a slightly larger package of changes which includes the introduction of a new civil procedure for requiring companies to revise defective accounts. We shall come to that when we reach Amendment No. 24.

The Dearing Report recommends that the criminal sanction in its existing form should go. The Government agree. There has, I believe, only ever been one, though successful, prosecution. Moreover, we are concerned that retention of the criminal 590 offence might make a court less ready to make an order under the proposed new civil procedure. The only question is whether anything should replace it. We consider that there are situations where a criminal sanction remains appropriate where there is a deliberate intention to prepare defective accounts or recklessness as to the obligation to prepare accounts which comply with the Act.

However, Amendment No. 12 makes it a criminal offence for a director to be party to the approval of accounts knowing that they do not comply with the requirements of the Act or being reckless as to whether they do so.

I hope that I have given an adequate description of the purposes of these amendments. I beg to move.