Lloyd's Maritime and Commercial Law Quarterly
THE COMPANIES ACT 1989
On 16 November 1989 the Companies Bill received the Royal Assent to become the Companies Act 1989. It had been introduced in the House of Lords on 21 December 1988 and during its passage through both Houses of Parliament many hundreds of complex amendments were made, some of them being major changes which had not been ready for inclusion in the Bill when it was first published in the Lords. The purpose of this brief note is not to provide a detailed guide to this very wide ranging Act but rather to draw attention to some of its major provisions. It is worth noting at the outset that many of the sections of the new Act are not intended to stand on their own but, rather, they insert new sections into the existing Companies Act 1985 or make amendments to it. Some provisions of the Act came into force on Royal Assent and the remainder will be brought into force by Statutory Instrument, probably in various stages.1
The new Act contains provisions in Part I designed to implement the European Community Seventh Company Law Directive on consolidated accounts.2 Thus, there are new provisions which set out the situations in which group accounts must be prepared and detailed rules as to form, content and accounting methods.3
With a view to governing which undertakings are to be included in the group accounts, there are, applicable to Part I only, new, broader definitions of “parent” and “subsidiary”.4 This is also intended to combat the growing practice of off-balance sheet financing, in which controlled but non-subsidiary companies are used to keep assets and liabilities off the consolidated balance sheet. Also in Part I are provisions under which it is intended to implement by Statutory Instrument many of the proposals of the Dearing Report,5 “The Making of Accounting Standards”, which had recommended a new organization for the process of devising and implementing accounting standards.6
The Eighth Company Law Directive7 lays down minimum requirements as to the education and training of auditors, the preparation of the statutory audit and independence of auditors. Part II of the new Act thus imposes a new and largely self-regulatory structure on auditors.8 In accordance with the Directive, this will theoretically involve an increased degree of supervision over the existing professional bodies by the
1. Section 215.
2. 83/349/EEC.
3. Section 5 and Sched. 2.
4. Section 21 and Sched. 9.
5. The report in November 1988 of the committee chaired by Sir Ron Dearing and set up by the Consultative Committee of Accountancy Bodies.
6. Section 19 and elsewhere.
7. 84/253/EEC.
8. It also includes many other matters.
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