The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 (the “Regulations”) amend the Companies Act 2006 and came into force 1 October 2013. These define reporting obligations for both quoted and unquoted companies.
The Regulations will take effect for financial years ending on or after 30 September 2013 and, therefore, companies with a calendar year-end will need to include the new disclosures when they publish their 2013 report in spring 2014. Failure to comply can lead to fines being imposed on the directors of the company.
Unquoted companies will have to continue to comply with the obligation to publish a business review, as previously required, with some exceptions for small companies. Quoted UK companies will also have to include, where this is necessary for an understanding of the development and performance of their business (i) information about the effectiveness of the company’s policies in addressing human rights, social and community issues that it faces; (ii) information on the gender balance in senior management, including a breakdown showing, at the end of the financial year, that information as regards directors, senior managers, and employees of the quoted company and its consolidated undertakings; and (iii) a new requirement on the quoted company to describe its business model and strategy, in line with the existing “comply or explain” disclosures in the UK Corporate Governance Code but now mandatory.
On October 17, 2013, the Council of the EU adopted the proposal for a directive to amend the Transparency Directive (2004/109/EC) which, in conjunction with the recently adopted Accounting Directive (2013/34/EU), will require both large and quoted EU-incorporated companies in the extractive industries or in the logging of primary forests to disclose payments of €100,000 (£84,400) or more to governments (both national and local), on both a country and project basis.
The UK has decided to comply early with its obligations to transpose these directives and has released a consultation with a view to promulgating regulations during 2014. The obligation will therefore apply to UK companies for financial years commencing on or after 1 January 2015. Therefore, the non-EU-incorporated parent of any UK subsidiary must comply or face onerous penalties which, in the case of a failure to prepare or deliver a report, will constitute a criminal offence for directors of the relevant companies. In each case, the report will be required to be made public within six months after the end of each financial year and should remain publicly available for at least ten years.
Along with the UK’s commencement of the process to obtain certification under the Extractive Industries Transparency Initiative, these new legislative changes will have a profound effect upon the way in which companies in the extractive resources sector comply with their reporting obligations.