Newsletter 2012 Issue 02

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Highlights

The proposed introduction of employee-owners and the related proposed changes to the statutory rules on companies buying their own shares are the most significant developments featured in this newsletter.The proposals for employee-owners are controversial in that employees who are allotted shares under this scheme will relinquish significant employment law rights.

Statutory Instruments

Other news

Statutory Instruments

The Insolvency Practitioners and Insolvency Services Account (Fees) (Amendment) Order 2012 No. 2264

This SI increases the fees charged for the operation of the Insolvency Services Account (“ISA”), a bank account maintained by BIS at the Bank of England through which funds must be passed in liquidations and bankruptcies. Fee adjustments are made following on from an annual ISA fees review, to ensure that the account is operated, moving forward, at as close to financial break even as possible.

The European Economic Interest Grouping and European Public Limited-Liability Company (Fees) Revocation Regulations 2012 No. 2300

These Regulations revoke, under powers in section 56(1) and (2) of the Finance Act 1973, the European Economic Interest Grouping and European Public Limited Liability Company (Fees) Revocation Regulations 2009 (S.I. 2009/2492). The 2009 Regulations continue to charge fees for registering certain documents delivered under the Companies Act 1985 in respect of an EEIG. The relevant provisions of that Act were repealed on 1 October 2009 with transitional provisions. The continuing fees apply to obligations arising from the transitional provisions. This revocation maintains a continuity of treatment for documents very rarely delivered to the registrar of companies for registration.

The Companies and Limited Liability Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012 No. 2301

These Regulations change the criteria for companies to claim exemption from the requirement to have their accounts audited by bringing the rules in line with EU requirements. To be classified as ‘small’ for these purposes, a company must comply with two out of three criteria:no more than 50 employees; no more than £3.26 million on their balance sheet; and less than £6.5 million in turnover. This change will allow 36,000 more companies to choose not to have an audit.

The regulations amend the Companies Act 2006, the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 (S.I. 2008/1911) (“the 2008 Regulations”), the Registrar of Companies and Application for Striking Off Regulations 2009 (S.I. 2009/1803), the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009 (S.I. 2009/1804) and the Unregistered Companies Regulations 2009 (S.I. 2009/2436).

These regulations also create new exemptions from the audit, preparation and filing of the individual accounts of subsidiary companies and LLPs to enable companies to take advantage of exemptions in the European Accounting Directives from 1 October 2012. Dormant subsidiary companies are exempt from preparing or filing accounts where they meet certain conditions and their parent company provides a guarantee of all liabilities which the subsidiary is subject to at the end of the financial year.

Subsidiary companies of any size may be exempt from having their accounts audited if their parent company provides a guarantee of all liabilities which the subsidiary is subject to at the end of the financial year.

They also amend the 2006 Act and the 2008 Regulations to give companies and LLPs more flexibility to change from preparing individual or group accounts in accordance with international accounting standards.

The Community Interest Company (Amendment) Regulations 2012 No. 2335

The Regulations insert a new regulation 29A into the Community Interest Company Regulations 2005 (SI 2005 No 1788) under the powers in sections 34(2) and (3)(c) of the 2004 Act the Companies (Audit, Investigations and Community Enterprise) Act 2004. They correct an error which occurred in the implementation of the Companies Act 2006.

The Regulations fully reinstate the requirement for a CIC to deliver a copy of the community interest company report to the registrar with a CIC’s annual accounts and reports. By mistake, the requirement was only partially reinstated after the original requirement in the 2004 Act was amended.

Other news

Consultation on revised directors' remuneration reporting regulations

The government has issued a consultation paper on revised regulations for the disclosure of directors' pay for large and medium sized companies.

Companies House fees

Companies House has reduced some of its fees from 1st October 2012. Amendments to fees will affect Companies, Limited Liability Partnerships (LLPs), Overseas Companies, European Economic Interest Groupings (EEIGs) and European Public Limited Liability Companies (SEs).

Amendments to web filing of dormant accounts

Changes have been made to Companies House WebFiling service, including enhancements to the Dormant Company Accounts form to allow filing for companies limited by guarantee and to enable companies to submit up to three different share classes.

Employee-owners

The government has announced plans for a new kind of employment contract called an employee-owners. New employee-owners will exchange some of their UK employment rights for rights of ownership in the form of shares in the business they work for, any gains on which will be exempt from capital gains tax. Companies of any size will be able to use this new kind of contract, but it is principally intended for fast growing small and medium sized companies that want to create a flexible workforce.

Under the new type of contract, employees will be given between £2,000 and £50,000 of shares that are exempt from capital gains tax. In exchange, they will give up their UK rights on unfair dismissal, redundancy, and the right to request flexible working and time off for training, and will be required provide 16 weeks’ notice of a firm date of return from maternity leave, instead of the usual eight.

Employee-owner status will be optional for existing employees, but both established companies and new start-ups can choose to offer only this new type of contract for new hires. Companies recruiting employee-owners will continue to have the option of inserting more generous employment conditions into the employment contract if they want to.

Legislation to bring in the new employee-owner contract will come later this year so that companies can use the new type of contract from April 2013. Employee-owners receiving full capital gains tax relief on the shares awarded as part of their contract will still be eligible for existing employee share ownership schemes such as the Enterprise Management Incentive.

See further Consultation on implementing employee owner status

Changes to statutory rules on companies buying their own shares

To make it easier for companies adopting the employee-owner scheme to be able to buy back their shares when such an employee leaves the company, the government proposes to make changes to the statutory provisions for the buy back of shares. A draft statutory instrument has been published, expected to come into effect on 6th April 2013.

Regulation 3 removes the requirement on private limited companies to pay in full the purchase price of shares in cases where the buy back is for an employees’ share scheme; this will allow a private company to pay for its shares by installments.

Regulation 4 reduces the requirements for shareholder authorisations concerning contracts for share buyback to be passed by special resolution to an ordinary resolution.

Regulation 5 allows a private limited company to hold its shares in treasury and to deal with such shares as treasury shares.

Simpler company reporting for larger companies to focus on transparency and gender balance

Measures to improve the quality of narrative reporting by Britain’s largest companies have been published by the Department for Business, Innovation and Skills. The draft regulations are said to help to increase corporate transparency and make it easier for shareholders to hold companies to account. They will also simplify reporting requirements. Following recommendations from Lord Davies' review of Women on Boards, quoted companies will also in future be required to report on the number of women and men within the organisation, both overall and in senior executive positions. This will allow investors to identify gender imbalances and help companies address talent blockages.

A concise, stand-alone report focused on strategy and the organisation’s business model will replace the existing business review. This should mean that shareholders can easily find out about a company’s strategy, the risks it faces, how it is performing and the direction in which it is heading.

The legislation will come into force in October 2013 at the same time as changes to voting and reporting on pay.

The Financial Reporting Council (FRC) will consult early next year on improved guidance to help companies follow the new regulations and produce succinct and meaningful reports. The regulations will remove several reporting requirements that have either been superseded, are already required elsewhere or do not provide meaningful information, including detail on:

  • Any essential contractual or other arrangements;
  • The principal activities of the company in the course of the year;
  • Asset values;
  • Charitable donations;
  • The acquisition of their own shares;
  • The policy and practice of payment to creditors.

Companies House app

Companies House has a new mobile App, which is available to download from the Apple App Store. The App is free of charge and allows the user to search via company name or number to retrieve basic company details. It also provides a useful statistics feature that shows incorporations and dissolutions. The App is only currently available for Apple, but they are in the process of developing an Android version to follow shortly.