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Buy back hurdles reducing to encourage employee ownership

Thu, 25 Apr 2013 10:49:00 +0100

In order to encourage more employee owned businesses, which evidence suggests are more resilient in tough economic times, the Government is proposing changes to the company law share buy back rules. These changes are intended to remove or reduce some of the barriers and disincentives to companies in allowing their employees to have direct share ownership.

These “deregulatory” changes, which relate to the authorisation and financing of share buy backs and the holding of repurchased shares “in treasury”, are due to come into force on Tuesday 30 April 2013.

For private companies, the changes are as follows:

The shareholders will be able to authorise a buy back by ordinary resolution (requiring a simple majority) rather than a special resolution (requiring 75% or more of the votes).
There will be no need for a company to find enough distributable reserves to pay for the shares, if they are paid for with a “small” amount of cash and the company’s articles authorise it.
That “small” amount must not exceed the lower of £15,000 or 5% of the company’s share capital in any financial year.
This will help companies to make small payments when they have no distributable reserves.
Shares bought back out of distributable profits or “small” amounts of cash as described above (but not otherwise out of capital) could be held in treasury and not cancelled.

The following additional relaxations would apply if the purchase is for the purposes of or pursuant to an employee share scheme:

multiple share buy backs could be authorised in advance by a single ordinary resolution (specifying the maximum number of shares, the maximum and minimum prices per share and its expiry date five years later or before);
the shares could be paid for in instalments (and not just on purchase); and
the required procedures for payment out of capital will be reduced to shareholder approval by special resolution supported by a solvency statement signed by all the company’s directors.
Non employee share scheme buy backs out of capital would still need to follow the more onerous existing procedures involving an auditors’ report, in addition to a directors’ statement and special resolution.

Simplification?

Companies will welcome these proposals as they will remove some, but not all, of the challenges with share buy backs, especially when buying back shares from departing employees and for small amounts of cash.

However, by making only some of these changes applicable to employee share schemes, the Government is not simplifying the buy back rules overall, but is introducing an extra layer of complexity. We cannot see any reason why these changes cannot be available to all types of private company share buy backs.

It is interesting that these changes are being made in advance of the new “employee shareholder” regime, due to be introduced this autumn. That’s the new type of employment contract under which, in exchange for giving up some of their employment rights, employees can opt to receive CGT free shares in their employer.

You can read our most recent report on the progress of the “employee shareholder” legislation here.

You can also read the draft regulations implementing these buy back changes on the Government's website here.

You can read the Government’s response to its consultation on these buy back changes here.

Will you be taking advantage of the relaxations in the audit and accounts rules effective from 1 October 2012?

Mon, 03 Dec 2012 15:50:00 Z

Certain small companies, LLPs and qualifying subsidiaries may be able to claim an exemption from having their annual accounts audited under new relaxations which are being brought in for financial years ending on or after 1 October 2012. In addition dormant subsidiaries will be exempt from even preparing and filing annual accounts.

These changes should involve lower audit fees and accounts costs, but, to take advantage of these exemptions, a subsidiary company or LLP will have to fulfil certain annual requirements, including statutory parent guarantees and additional Companies House filings.

The general rule as to annual accounts and auditing them

The general rule is that all companies and LLPs must prepare, circulate to members and others, and deliver to Companies House, annual accounts which have been audited. A dormant company or LLP, or one qualifying as “small”, could claim exemption from having its accounts audited.

The following explains new exceptions to the general rule. These exceptions also apply to LLPs.

Simplification of the qualifications for a “small” company

There used to be two levels of qualification for a “small” company. If a company qualified for the first level of “small” it could produce annual accounts containing less information according to the small companies accounts regime. If that company also qualified for the second level of “small”, it was excused from having those accounts audited.

The second level of “small” company has been removed. So now a company subject to the small companies accounts regime will also be able to claim exemption from having its accounts audited.

The conditions for the previous first level, and now the new single level, of “small” company are that at least two of the following must apply:

Turnover not more than £6.5 million
Balance sheet total not more than £3.26 million
Not more than 50 employees

The second level, that has now been removed, was that the company also had to meet the first two of those bullet points.

Similar changes have been made to small groups.

Qualifying subsidiaries, of whatever size, now exempt from audit

A subsidiary company that meets the following conditions can claim exemption from having its accounts audited:

Its parent must be incorporated in an EEA State.
Each year its directors must deliver to Companies House, by the date they file its accounts, the following documents:
- a written notice that all its members agree to the exemption
- a statement (on Companies House form AA06) by the parent that it guarantees the subsidiary for that financial year; and
- a copy of the parent’s consolidated accounts including a copy of the auditor’s report and the annual report on those accounts.

The subsidiary must be included in the parents’ consolidated accounts which must include a note about this audit exemption.

Although Form AA06 doesn’t specifically say so, that statement has the effect that the parent guarantees all outstanding liabilities to which the subsidiary is subject at the end of that financial year, and it is enforceable against the parent by any person to whom the subsidiary is liable in respect of those liabilities and remains in force until the liabilities are satisfied in full.

Dormant subsidiaries exempt from preparing and filing annual accounts

A subsidiary company that is dormant can claim exemption from having to prepare, circulate and file any annual accounts, if it meets certain conditions that are almost the same as the conditions that a subsidiary must satisfy, as listed above, to claim exemption from having its accounts audited. These include the parent guarantee.

What we think

The simplification of the qualifications for the audit exemption for small companies is welcome. So too are the additional audit exemption for subsidiaries of any size and the annual accounts exemption for dormant subsidiaries.

But it will be interesting to see how widely these further exemptions will be claimed. The exemptions will not be claimed if parent undertakings are reluctant to give the statutory guarantees.

The ring-fencing of liabilities between different areas or divisions of a business can be one of the main reasons why companies adopt group structures. A parent guarantee would drive a coach and horses through such ring-fencing. The cost savings of claiming these accounts exemptions would need to be weighed against the risk of liabilities being enforced on the parent.

If we are a third party dealing with a qualifying or dormant subsidiary, which has not claimed these exemptions, we might want to ask why. Is it just a matter of ring-fencing? Or is the subsidiary in financial difficulty? Is it about to be sold?

Time will tell.

For more information on these issues please contact Nicola Mallett or your usual Lewis Silkin contact.

Do you still have nominee shareholders in your wholly owned subsidiaries?

Thu, 20 Sep 2012 15:28:00 +0100

You don’t need to any more. Since 1992 private limited companies (and since 1 October 2009 public limited companies) have been able to have just one member.

Companies that were 100% owned by an individual or another company would have at least one share held in the name of a nominee, who executed a declaration of trust in favour of the other shareholder and beneficial owner.

We have recently found that some groups still have this arrangement in their group company structure. We explain here the practical steps you’ll need to take upon the company becoming a single member company after unravelling this arrangement.

Immediately:

Check the company’s articles of association

You should check the company’s articles, including with reference to the relevant Table A or Model Articles, for any provisions that are inconsistent with the company having a single shareholder.

Even if the Companies Act 2006 (CA2006) overrides a particular provision (for example, the quorum at shareholders’ meetings, section 318(1) CA2006) it would be good practice to amend those provisions.

We have a guide "What's the value in updating my articles of association?" on our website which explains this point, and other benefits of updating articles.

Note the company’s status in its statutory books

In the company’s register of members, next to the name and address of its sole member, record the fact that the number of the company’s members has fallen to one and the date on which this occurred (section 123 CA2006).

And afterwards:

Record, and if appropriate, file decisions of the sole member

Where the sole member takes any decision that may be taken in general meeting and that decision has effect as if agreed by the company in general meeting the sole member must provide details of his decision to the company (section 357 CA2006) and the company must keep a record of that decision for at least 10 years (section 355 CA2006).

If that decision, if not made, would not have been effective unless passed as a special resolution, then a copy of that decision must be filed at Companies House within 15 days (sections 29 and 30 CA2006).

Contracts with the sole member who is also a director or shadow director

If the contract is not in the company’s ordinary course of business and is not in writing, the company must ensure that its terms are either set out in a written memorandum or are recorded in the minutes of the first meeting of the directors after the contract has been entered into (section 231 CA2006).

For more information on these issues please contact Nicola Mallett or your usual Lewis Silkin contact.

How the Barclay brothers took control of hotel company

Mon, 02 Jul 2012 11:07:00 +0100

Although there were pre-emption provisions on transfers of shares in a company owning three major London hotels, the Barclay brothers were able to get round those restrictions by buying all the shares in one of the company's corporate shareholders. The Court of Appeal has confirmed that those pre-emption provisions did not extend to a transfer of the shares in one of the company’s corporate shareholders.

Setting the scene

The setting for this case was the publicised plan of the Barclay brothers (Sir David and Sir Frederick Barclay) to acquire control and ownership of a company, Coroin Limited, and the hotels it owns: Claridge’s, the Connaught and the Berkeley.

Misland (Cyprus) Investments Limited, was one of the company’s shareholders. All of Misland’s shares were owned by A&A Investments Limited, a Bermudian company through which Peter Green and his family control their business interests.

In January 2011, a company owned by the Barclay brothers bought from A&A Investments Limited all the issued shares in Misland. So by acquiring Misland, the Barclay brothers had acquired control of some of the shares in Coroin.

Mr McKillen was another of Coroin’s shareholders. He didn’t like the Barclay brothers’ plan and sought ways to upset it.

Mr McKillen claimed that the sale of the shares in Misland triggered the pre-emption provisions in Coroin’s shareholders’ agreement and articles of association, and thus Misland’s shares in Coroin should be offered to the company’s other shareholders, including Mr McKillen.

Pre-emption provisions on transfers of shares in Coroin

Coroin’s shareholders’ agreement contained typical pre-emption provisions on transfers of shares: a shareholder desiring to transfer its shares (or any interest in them) gives notice of that fact to the company (a transfer notice) and then those shares are offered for sale to the other shareholders. If a shareholder attempts to dispose of its shares in Coroin (or an interest in them) otherwise than in accordance with the shareholders’ agreement, it is deemed to have given a transfer notice, and so its shares are offered to the other shareholders.

“Shareholder” was defined as any holder of shares, and included any beneficial owner of the shares.

Coroin’s articles contained similar provisions.

Judgments

It was held in the High Court, and confirmed in the Court of Appeal, that those pre-emption provisions on transfers of shares did not apply to the sale by A&A Investments of its shares in Misland.

Although the pre-emption provisions referred to a transfer of an “interest” in shares in Coroin, an indirect interest such as that held by A&A through its ownership of Misland, was not such an interest. The pre-emption provisions would only apply to an interest arising from the beneficial ownership of the shares.

Misland was the beneficial owner of the shares in Coroin registered in its name so it held the interest arising from that beneficial ownership. There had been no transfer of that interest in those shares so the pre-emption provisions did not apply.

Our views on this outcome

One could sympathise with Mr McKillen over the outcome of this case.

If you wish to prevent an indirect takeover of your company such as the Barclays brothers managed in this case, you could include a change of control clause in your company’s pre-emption provisions. Essentially such a clause would provide that there is a deemed transfer notice upon the transfer of an indirect interest in the company’s shares.

You can read the High Court judgment of this case McKillen v Misland (Cyprus) Investments Limited and others [2011] EWHC 3466 (Ch) here.

You can read the Court of Appeal decision in this case here.

For more information on these issues please contact Nicola Mallett or your usual Lewis Silkin contact.

A managing director might not be so special after all

Tue, 28 Feb 2012 14:58:00 Z

A managing director should not assume that he has more powers than his co-directors unless the company’s articles permit it and the board has specifically delegated certain authority to him.

In the recent High Court case of Smith v Butler, a managing director tried to suspend the chairman of the company. There was no board resolution. He considered that, as managing director, he had implied authority to do that. The court disagreed.

The facts in more detail

Mr Smith, the chairman and majority shareholder of the company, CH Limited (CH), was allegedly involved in cheque and credit card fraud against CH. At the beginning of a board meeting, Mr Butler, the managing director (MD) and minority shareholder, purported to suspend Smith as chairman, in his capacity as employee of the company. There was no board resolution authorising the MD to do that. In the MD’s employment contract with the company, there were no express provisions whereby any of the powers of the board were delegated to him.

Smith instituted proceedings against Butler and CH. He claimed that Butler had no authority, without a valid board resolution, to suspend him. Butler contended that he had implied authority as MD to do that.

Butler instructed lawyers to act on behalf of the company in defending Smith’s action, again without a board resolution authorising him.

The law

The usual position under a company’s articles of association is that the directors are in general authorised to exercise all the powers of the company; and they may also delegate certain of their powers to an MD.

“Directors” here means the directors collectively; that is, the board of directors, making decisions at a duly convened board meeting or by written resolution, in accordance with the company’s articles. It does not refer to individual directors acting by themselves.

So, for an MD to have the power to do something, he must be given authority either by a board resolution or in his service contract with the company – that service contract should itself have been entered into by, and signed on behalf of, the company following an authorising board resolution.

The court’s decision

The court decided that Butler had no authority to suspend Smith: the board had not delegated the powers to him to do that, either by board resolution or in his service contract. The court pointed out that, in the absence of an express delegation of authority, an MD’s position is generally no different from that of any other director.

The court did concede that an MD may have implied authority to take some commercial decisions in the day-to-day running of the business, although it did not address the point directly. However, the court was clear that suspending a chairman could never be seen as a commercial decision. Therefore, it was for the board to suspend the chairman, not an individual director.

In addition, the court said that Butler’s decision to instruct lawyers to defend the case should also have been made by the board and not by an individual director. It stated that it is not within an MD’s sole remit to instruct lawyers and incur legal costs on behalf of the company.

Our thoughts on this case

This case provides a clear reminder that an MD should be wary of making major decisions without first obtaining board approval - especially decisions which are clearly not in the category of day-to-day, commercial decisions.

MDs should review the terms of their appointment and their service agreements before assuming that their job title imbues them with any authority over and above that of any other director.

This case is being appealed, so we may have more to say on this in due course.

Here’s a link to the High Court judgment of Smith v Butler and another [2011] EWHC 2301 (Ch)

Contractual remedies: the different outcomes of rescission and repudiatory breach

Tue, 28 Feb 2012 14:52:00 Z

An innocent party to a breach of contract is entitled to damages in compensation for his loss. And, depending on the seriousness of the breach, he may also be entitled to put an end to the contract in addition to claiming damages.

A contract can be ended by way of rescission or it can be terminated for repudiatory breach. Superficially, the effects of rescission and termination for breach appear alike. To add to the confusion, termination for breach is frequently referred to as “rescission”. However, the two are distinct, being available in different circumstances, and creating very different outcomes in relation to damages, as the recent case of Howard-Jones v Tate illustrates.

Rescission

If a contract is rescinded, it is set aside and treated as though it had never existed. The court will seek to restore the parties to the position they would have been in had they never signed the contract. For example, if a seller made false representations about his goods and the contract was rescinded as a result, the seller would be compelled to take back the goods and refund the purchase price to the buyer. If the buyer had incurred additional expenditure in relation to the contract, such as warehousing costs, then he would also be entitled to reimbursement of these, to ensure that he was not adversely impacted by having entered into the contract.

The circumstances may prevent the court from being able to rewind time in this way. If the buyer had sold on the goods in this example, they would not be available for return to the seller and rescission would be impossible. An award of rescission is therefore always at the court’s discretion. Where rescission is not available, the innocent party will still be entitled to damages.

Rescission is generally only available in limited circumstances, such as where there has been misrepresentation, fraud or mistake - matters which affect its formation. This can be varied by agreement between the parties; some contracts set out circumstances in which the agreement will be capable of rescission. Conversely, the right to rescind can also be expressly excluded by contract.

Repudiatory breach

If a breach is so serious that it goes to the root of the contract, the innocent party may elect to terminate performance of the contract from that point, in addition to claiming damages.

The difference here is that the contract is not treated as though it had never existed. The journey that the parties have been on since the contract began is cut short at the point where the innocent party elects to treat itself as discharged from further obligations. The obligations of both parties under the contract end. The defaulting party cannot travel freely on, as his original obligations are replaced by an obligation to pay compensation for the loss the innocent party has suffered as a result of the breach.

The crucial difference in the damages here is that the loss is assessed by reference to the future obligations that should have been performed rather than just the loss already sustained.

Termination for repudiatory breach will only be made out if there has been a breach of a fundamental term or a condition of the contract.

Where certain obligations are of particular importance to the parties, it is advisable to designate them as conditions to enable an injured party to elect to terminate the contract in case of breach.

Illustration of the difference in damages

A recent case illustrates the difference in the amounts that may be awarded for damages for rescission or for repudiatory breach.

In Howard-Jones v Tate, Mr Howard-Jones agreed to buy a portion of Mr Tate’s farmland, which included some outbuildings. At the time of purchase, the outbuildings were connected to supplies of water and electricity from the retained part of the farm. Mr Howard-Jones wanted separate, metered supplies direct to the outbuildings and it was a condition of the contract that Mr Tate would arrange this at his own expense within six months.

Mr Tate failed to do so and Mr Howard-Jones sought to rescind the contract. The County Court judge rightly held that rescission was not available as there had been no misrepresentation, mistake or fraud. Mr Howard-Jones had contracted to buy some land without its own water and electricity supply, and that is what he got. However, there had been a breach of the condition to supply water and electricity.

Somewhat inexplicably, however, the judge awarded damages as though the contract was being rescinded. He held that the land should be re-conveyed to Mr Tate and that Mr Howard-Jones should be refunded the purchase price and all his subsequent outlay on the property (such as council taxes). Altogether the award was about £190,000, significantly in excess of the £140,000 Mr Howard-Jones originally paid for the property.

When Mr Tate appealed, the Court of Appeal found that the the County Court had assessed damages on the wrong basis. Mr Howard-Jones was entitled to terminate the contract and he was discharged from any further obligations, but he was not entitled to recover the purchase price for the land. Instead, he could only recover the costs of arranging the supply of electricity and water to his property, and of the rent he’d incurred on alternative premises while he was unable to use the outbuildings. This sum was likely to be only a few thousand pounds; significantly lower than the original award.

What to take from this case

As this case illustrates, termination for breach is not rescission by another name. It is important for contracting parties to be clear about the differences between the two so that they have a realistic understanding of their entitlements in case of breach.

You can read about Howard-Jones v Tate [2011] EWCA Civ 1330 here.

Taxman strikes a blow against striking off

Tue, 28 Feb 2012 14:50:00 Z

On 1 March 2012, the tax treatment of distributions made by companies which are about to be struck off the register changed. Companies and their owners may now face the additional cost of a formal winding up to secure the best tax treatment for shareholders.

How to put and end to a company

Where clients want to bring an end to a company and have its surplus assets distributed to shareholders, one possibility is to put the company through a formal winding up. However, this requires the appointment of an insolvency practitioner as liquidator and so is likely to take longer and be more expensive than the alternative of a distribution followed by striking the company off.

The alternative involves simply distributing the company’s assets to the shareholders (subject to addressing the company law rules on distributions) and applying to Companies House for the company to be struck off the register.

From a tax perspective, distributions of assets made to shareholders as part of a winding up are treated as capital receipts. Individual shareholders will therefore potentially realise a capital gain, taxable at 18% or 28% (or at 10% if the conditions for entrepreneurs’ relief are satisfied).

By contrast, distributions made ahead of a striking off are not part of a winding up and so strictly are taxed as income – just like dividends. For a top-rate (50%) income tax payer, this would likely mean an effective 36.11% tax rate on the amount received.

What was the previous tax position?

For many years HM Revenue & Customs operated a concession which applied as long as they were given assurances, including that the company did not intend to carry on business in future and intended to be struck off. If so, HMRC were prepared to regard distributions made as part of a striking off process as having been made under a formal winding up, securing capital treatment for the shareholders.

What has changed?

HMRC have withdrawn the concession in question with effect from 1 March 2012. Formal legislation has taken effect in its place, but with one key difference: a new limit of £25,000 has been introduced. This limit applies per distributing company, not per receiving shareholder, and so where the distributions total more than £25,000, every shareholder will now be taxed on the basis of receiving an income distribution.

For this reason, shareholders wishing to bring an end to their company now have to assess whether this rule change affects them. If so, they must consider their individual tax positions and decide whether any tax saving they may make, if they receive a capital rather than income distribution, makes the extra cost and administration of a formal winding up worthwhile.

The new £25,000 limit may provide a boost to the business of insolvency practitioners, but other business owners are likely to be struck by the thought that this change should have been struck out.

Who's being unreasonable?

Thu, 26 Jan 2012 17:39:00 Z

Contractual provisions requiring a party’s consent to the other party doing something often state that such consent “must not be unreasonably withheld or delayed”. A recent case concerning earn out consideration under a share purchase agreement illustrates that the courts will look at reasonableness from the point of view of the party which is refusing its consent, rather than whether it is reasonable for the party who wants it.

Background facts of the case

The target company, Acolyte Biomedica Limited, had developed a test called BacLite for detecting the superbug MRSA. In February 2007, Porton Capital and Acolyte’s other shareholders sold all their shares in Acolyte to 3M.

The share purchase agreement provided for payment of consideration in two stages: an initial payment of £10.4 million in cash and then a further payment in three years’ time based on the net sales of BacLite in 2009 up to a maximum of £41 million.

To protect the sellers’ earn out payment, the share purchase agreement also provided that:

3M must actively market BacLite in the United States, the European Union, Canada and Australia; and
3M must not cease to carry on the Acolyte business or the development or marketing of BacLite without the written consent of the sellers which “shall not be unreasonably withheld or delayed.”

3M’s marketing of BacLite did not go as well as hoped. For example, there were difficulties obtaining regulatory approval in the United States.

In 2008, 3M sought the sellers’ consent to the cessation of the Acolyte business on the basis of BacLite’s inadequate performance; a change in the market dynamics; and the disproportionate costs being incurred by 3M in continuing the business.

3M offered the sellers US$1.07 million, which was their estimate of the earn out part of the consideration if the BacLite business continued through 2009. The sellers refused their consent.

The court’s decision

The court considered that 3M was in breach of its obligation actively to market BacLite.

It then decided that the sellers had acted reasonably in withholding their consent to the cessation of the Acolyte business. Following current case law (on landlords’ consent to lease assignments) it applied the following:

It was for 3M to show that the sellers’ refusal to consent was unreasonable.
The sellers did not have to show that their refusal was right or justified, simply that it was reasonable in the circumstances.
The sellers were entitled to consider their own interests in receiving the highest earn out payment possible.
The sellers were not required to balance their own interests with those of 3M.

Conclusions

At first sight, this case is striking in that it allows a party simply to act in its own interests when deciding whether to withhold consent. However, the court had already found that 3M was in breach of its obligation to market BacLite. In this context, it is more understandable that the sellers were allowed to withhold their consent to 3M ceasing to carry on the business. It would be interesting to know what the court’s decision would have been had 3M continued to market BacLite while seeking the sellers’ consent to the termination of the business.

So what should you do if you are negotiating these types of clause and want to limit the options for the other party to withhold its consent? You could consider adding wording specifying either that both parties’ commercial interests may be taken into account when deciding what is reasonable, or the circumstances in which withholding consent will be deemed to be unreasonable, or reasonable - any such list would need to be full and clear.

You can read the judgment of Porton Capital Technology Funds and others v 3M UK Holdings Ltd and 3M Company [2011] EWHC 2895 here.

An aide-memoire for accounts deadlines and changing accounting reference dates

Thu, 26 Jan 2012 15:47:00 Z

Are you having difficulty remembering what the accounts deadlines are and when or whether you can change your accounting reference date? The rules are complex. Here’s our aide-memoire to guide you through the key provisions.

Section references are to the Companies Act 2006.

Annual accounts

A company’s annual accounts are prepared by reference to a “financial year” ending on its accounting reference date (ARD) (or within 7 days before or after that date) (section 390).

How does a company know what its accounting reference date is?

A fairly new company’s default ARD is the last day of the month in which the anniversary of its incorporation falls (section 391). So, if it was incorporated on 6 April 2011, its first ARD is 30 April 2012. Subsequent ARDs will be on 30 April each year. But this can be changed. See below.

The accounting reference period is the period from either the date of incorporation or from immediately after the previous ARD and ending on the ARD.

Deadlines for filing annual accounts and reports with Companies House

The directors must deliver the company’s annual accounts and reports to Companies House, in general, within the following number of months after the relevant ARD:

for a private company, within 9 months; and
for a public company, within 6 months,
(sections 441 and 442).

Public company accounts meeting

The directors of a public company must lay before a shareholders’ meeting copies of its annual accounts and reports no later than the deadline for filing those accounts (section 437).

So a public company’s accounts meeting (its agm) is usually held within 6 months after the end of the relevant financial year.

A private company is not required to have an agm or an accounts meeting, unless its articles specifically require this (this is rare).

Circulate to shareholders

The company must send a copy of its annual accounts and reports to each of its shareholders and others (section 423), in the case of:

a private company, no later than when it files them or, if it hasn’t filed them by then, the deadline for filing those accounts; and
a public company, at least 21 days before the accounts meeting
(section 424).

So a private company usually sends its accounts and reports to shareholders when or before it files them. A public company usually sends its accounts and reports to shareholders with the agm notice.

When is the accounts filing deadline not 9/6 months after the ARD?

The exceptions to the usual 9 (private) and 6 (public) month rules are as follows:

First accounts covering more than 12 months
If a company's first accounts cover a period of more than 12 months (because the company’s incorporation date is not at the end of the month or the accounting reference period has been extended - using Form AA01), the deadlines are:

9 months (private company), or 6 months (public company), after first anniversary of the date of incorporation; or
3 months after the accounting reference date, whichever is later (section 442(3)).

After shortening an accounting reference period
If an accounting reference period has been shortened (using Form AA01), the new filing deadlines will normally be:

9 months if a private company, or 6 months if a public company, after the new accounting reference date; or
3 months after the date Companies House receives the notice of the change, whichever is later (section 442(4)).

So this gives the company at least 3 months after the change to prepare its accounts.

Changing an accounting reference date

You can do this if the current deadline for delivering the accounts has not already passed. Companies House has no discretion to waive this rule.

You can shorten an accounting reference period whenever and as often as you like.

However, extensions are more restricted: an accounting reference period cannot:

be for more than 18 months; or
be extended more than once in 5 years. One exception to this is if the company is aligning its accounting reference date with that of a subsidiary undertaking or parent undertaking in the EEA.

There are a few legal dodges that you could implement to circumvent this restrictive extensions rule. For example, the company could incorporate a new subsidiary undertaking in England, leave it dormant, but change the new company’s accounting reference date to the preferred date and then extend the company’s accounting reference date to the preferred date.

We hope you find this helpful.

For more guidance available on the Companies House website please click here