COMPANIES PART I GENERAL Citation, commencement and interpretation 1 1 These Regulations may be cited as the Companies (1986 Order) (Operating and Financial Review and Directors' Report etc.) Regulations (Northern Ireland) 2005. 2 These Regulations come into operation on 31st March 2005. 3 Parts II, III , IV and VI have effect as respects companies' financial years which begin on or after 1st April 2005. 4 Part V has effect as follows – a regulation 13 has effect from 1st April 2005, and b regulations 14 to 16 have effect as respects annual accounts, directors' reports and operating and financial reviews prepared for companies' financial years which begin on or after 1st April 2006. 5 In these Regulations, “the 1986 Order ” means the Companies (Northern Ireland) Order 1986. PART II DIRECTORS' REPORT Duty to prepare directors' report 2 For Article 242 of the 1986 Order (duty to prepare directors' report) substitute – DIRECTORS' REPORT Duty to prepare directors' report 242 1 The directors of a company shall for each financial year prepare a report (a “directors' report”) complying with the general requirements of Article 242ZZA, and containing the business review specified in Article 242ZZB. 2 For a financial year in which – a the company is a parent company, and b the directors of the company prepare group accounts, the directors' report must be a consolidated report (a “group directors' report”) relating, to the extent specified in the following provisions of this Part, to the company and its subsidiary undertakings included in the consolidation. 3 A group directors' report may, where appropriate, give greater emphasis to the matters that are significant to the company and its subsidiary undertakings included in the consolidation, taken as a whole. 4 In the case of a quoted company, a directors' report need not contain any information included in the operating and financial review for that financial year (see Article 242AA). 5 If a directors' report does not comply with the provisions of this Part relating to the preparation and contents of the report, every director of the company who – a knew that it did not comply or was reckless as to whether it complied, and b failed to take all reasonable steps to secure compliance with the provision in question, is guilty of an offence and liable to a fine. Directors' report: general requirements 242ZZA 1 The directors' report for a financial year must state – a the names of the persons who, at any time during the financial year, were directors of the company, b the principal activities of the company in the course of the year, and c the amount (if any) that the directors recommend should be paid by way of dividend. 2 In relation to a group directors' report paragraph (1)(b) has effect as if the reference to the company was a reference to the company and its subsidiary undertakings included in the consolidation. 3 The report must also comply with Schedule 7 as regards the disclosure of the matters mentioned there. 4 In Schedule 7 – Part I relates to matters of a general nature, including changes in asset values, directors' shareholdings and other interests and contributions for political and charitable purposes; Part II relates to the acquisition by a company of its own shares or a charge on them; Part III relates to the employment, training and advancement of disabled persons; Part V relates to the involvement of employees in the affairs, policy and performance of the company; Part VI relates to the company’s policy and practice on the payment of creditors. Directors' report: business review 242ZZB 1 The directors' report for a financial year must contain – a a fair review of the business of the company, and b a description of the principal risks and uncertainties facing the company. 2 The review required is a balanced and comprehensive analysis of – a the development and performance of the business of the company during the financial year, and b the position of the company at the end of that year, consistent with the size and complexity of the business. 3 The review must, to the extent necessary for an understanding of the development, performance or position of the business of the company, include – a analysis using financial key performance indicators, and b where appropriate, analysis using other key performance indicators, including information relating to environmental matters and employee matters. 4 The review must, where appropriate, include references to, and additional explanations of, amounts included in the annual accounts of the company. 5 In this Article, “key performance indicators” means factors by reference to which the development, performance or position of the business of the company can be measured effectively. 6 In relation to a group directors' report this Article has effect as if the references to the company were references to the company and its subsidiary undertakings included in the consolidation. . Auditors' report on directors' report 3 In Article 243 of the 1986 Order (auditors' report) , for paragraph (3) substitute – 3 The auditors must state in their report whether in their opinion the information given in the directors' report for the financial year for which the annual accounts are prepared is consistent with those accounts. . Special provision for small companies 4 For sub-paragraph (a) of Article 254(4) of the 1986 Order (exemptions for small companies from disclosures in directors' report) substitute – a Articles 242ZZA(1)(c) (directors' report: amount to be paid as dividend) and 242ZZB (directors' report: business review); . Special provision for medium-sized companies 5 After paragraph (2) of Article 254A of the 1986 Order (special provisions for medium-sized companies) insert – 2A The directors' report for the year need not comply with the requirements of Article 242ZZB(3) (business review to include analysis using key performance indicators) so far as they relate to non-financial information. . Cases in which special provisions for small and medium-sized companies do not apply 6 1 In Article 255A of the 1986 Order (cases in which special provisions in Articles 254 and 254A do not apply) , for paragraph (1) substitute – 1 If a company is, or was at any time within the financial year to which the accounts relate, an ineligible company, Articles 254 and 254A do not apply. 1A If a company does not fall within paragraph (1) but is, or was at any time within the financial year to which the accounts relate, a member of an ineligible group – a Article 254(4) and (5)(b) and Article 254(2A) apply; b the other provisions of Articles 254 and 254A do not apply. 1B A company is ineligible if – a it is a public company, b it has permission under Part IV of the Financial Services and Markets Act 2000 to carry on one or more regulated activities, or c it carries on an insurance market activity. . Amendments to Schedule 7 7 1 Schedule 7 to the 1986 Order (matters to be dealt with in directors' report) is amended as follows. 2 In paragraph 1 (asset values) – a in sub-paragraph (2) omit “or of any of its subsidiary undertakings”, and b after that sub-paragraph insert – 3 In relation to a group directors' report sub-paragraph (2) has effect as if the reference to the fixed assets of the company was a reference to the fixed assets of the company and its subsidiary undertakings included in the consolidation. . 3 In paragraph 5A (use of financial instruments) – a in sub-paragraph (1) omit – i “and by its subsidiary undertakings”, and ii “and its subsidiary undertakings included in the consolidation” in each place where it occurs, and b after that sub-paragraph insert – 1A In relation to a group directors' report sub-paragraph (1) has effect as if the references to the company were references to the company and its subsidiary undertakings included in the consolidation. . 4 In paragraph 6 (miscellaneous matters) – a make the existing provision sub-paragraph (1), b in that sub-paragraph, omit – i in head (a), “or any of its subsidiary undertakings”, ii in head (b), “and of its subsidiary undertakings”, and iii in head (c), “and its subsidiary undertakings”, and c after that sub-paragraph insert – 2 In relation to a group directors' report heads (a), (b) and (c) of sub-paragraph (1) have effect as if the references to the company were references to the company and its subsidiary undertakings included in the consolidation. . PART III OPERATING AND FINANCIAL REVIEWS Duty to prepare operating and financial review 8 After Article 242A of the 1986 Order (approval and signing of directors' report) , insert – QUOTED COMPANIES: OPERATING AND FINANCIAL REVIEW Duty to prepare operating and financial review 242AA 1 The directors of a quoted company shall for each financial year prepare an operating and financial review. 2 The review must comply with Schedule 7ZA, save that nothing in that Schedule requires the disclosure of information about impending developments or about matters in the course of negotiation if the disclosure would, in the opinion of the directors, be seriously prejudicial to the interests of the company. 3 For a financial year in which – a the company is a parent company, and b the directors of the company prepare group accounts, the operating and financial review must be a consolidated review (a “group operating and financial review”) relating, to the extent specified in Schedule 7ZA, to the company and its subsidiary undertakings included in the consolidation. 4 A group operating and financial review may, where appropriate, give greater emphasis to the matters that are significant to the company and its subsidiary undertakings included in the consolidation, taken as a whole. 5 If an operating and financial review does not comply with the provisions of this Part relating to the preparation and contents of the review, every director of the company who – a knew that it did not comply or was reckless as to whether it complied, and b failed to take all reasonable steps to secure compliance with the provision in question, is guilty of an offence and liable to a fine. Approval and signing of operating and financial review 242AB 1 The operating and financial review must be approved by the board of directors and signed on behalf of the board by a director or the secretary of the company. 2 Every copy of the operating and financial review laid before the company in general meeting, or that is otherwise circulated, published or issued, must state the name of the person who signed it on behalf of the board. 3 The copy of the operating and financial review delivered to the registrar must be signed on behalf of the board by a director or the secretary of the company. 4 If a copy of the operating and financial review – a is laid before the company, or otherwise circulated, published or issued without the review having been signed as required by this Article or without the required statement of the signatory’s name being included, or b is delivered to the registrar without being signed as required by this Article, the company and every officer of it who is in default is guilty of an offence and liable to a fine. . Objective and contents of operating and financial review 9 After Schedule 7 to the 1986 Order insert – SCHEDULE 7ZA OPERATING AND FINANCIAL REVIEW Review objective 1 An operating and financial review is a balanced and comprehensive analysis, consistent with the size and complexity of the business, of – a the development and performance of the business of the company during the financial year, b the position of the company at the end of the year, c the main trends and factors underlying the development, performance and position of the business of the company during the financial year, and d the main trends and factors which are likely to affect the company’s future development, performance and position, prepared so as to assist the members of the company to assess the strategies adopted by the company and the potential for those strategies to succeed. Other general requirements 2 The review must include – a a statement of the business, objectives and strategies of the company; b a description of the resources available to the company; c a description of the principal risks and uncertainties facing the company; and d a description of the capital structure, the treasury policies and objectives and liquidity of the company. Details of particular matters 3 1 To the extent necessary to comply with the general requirements of paragraphs 1 and 2, the review must comply with paragraphs 4 to 6. 2 If the review does not contain information and analysis of each kind mentioned in paragraphs 4 and 5, it must state which of those kinds of information and analysis it does not contain. 4 1 The review must include – a information about environmental matters (including the impact of the business of the company on the environment), b information about the company’s employees, and c information about social and community issues. 2 The review must, in particular, include – a information about the policies of the company in each area mentioned in sub-paragraph (1), and b information about the extent to which those policies have been successfully implemented. 5 The review must also include – a information about persons with whom the company has contractual or other arrangements which are essential to the business of the company; and b information about receipts from, and returns to, members of the company in respect of shares held by them. 6 1 The review must include analysis using financial and, where appropriate, other key performance indicators, including information relating to environmental matters and employee matters. 2 In sub-paragraph (1), “key performance indicators” means factors by reference to which the development, performance or position of the business of the company can be measured effectively. Reference to and explanation of company accounts 7 To the extent necessary to comply with the general requirements of paragraphs 1 and 2, the review must, where appropriate, include references to, and additional explanations of, amounts included in the company’s annual accounts. Application of Schedule to group operating and financial review 8 In relation to a group operating and financial review this Schedule has effect as if the references to the company (other than the last such reference in paragraph 1) were references to the company and its subsidiary undertakings included in the consolidation. . Auditors' reports on operating and financial reviews 10 In Article 243 of the 1986 Order (auditors' report), after paragraph (3) insert – 3A If the company is a quoted company, the auditors must state in their report – a whether in their opinion the information given in the operating and financial review for the financial year for which the annual accounts are prepared is consistent with those accounts; and b whether any matters have come to their attention, in the performance of their functions as auditors of the company, which in their opinion are inconsistent with the information given in the operating and financial review. . PART IV SUMMARY FINANCIAL STATEMENTS Summary financial statements 11 1 Article 259 of the 1986 Order (summary financial statements) is amended as follows. 2 In paragraph (1) – a for “Article 246(1)” substitute “Article 246(1A)”; b after the definition of “entitled person” insert – “summary financial statement” means a statement that is derived from the company’s annual accounts and (in the case of a quoted company) the directors' remuneration report and prepared in accordance with this Article and regulations made under it; . 3 In paragraph (2), for “Article 246(1)” substitute “Article 246(1A)”. 4 After paragraph (2) insert – 2ZA A quoted company that – a sends a summary financial statement to an entitled person, and b does not send a full copy of its operating and financial review for the financial year to which that statement relates to each entitled person in accordance with Article 246(1), must publish its operating and financial review on a web site throughout the period beginning at least 21 days before the date of the meeting at which the accounts and directors' remuneration report from which the statement is derived are to be laid and ending with the conclusion of that meeting. . 5 In paragraph (2C)(a), for “directors' report” substitute “directors' remuneration report”. 6 In paragraph (2D) – a for “paragraph (2C)” substitute “paragraph (2ZA) or (2C)”; b for sub-paragraph (a) substitute – a any review or statement that is required to be published on a web site as mentioned in those paragraphs is published for a part, but not all, of the period mentioned in those paragraphs; and ; c in sub-paragraph (b), after “publish that” insert “review or”. 7 For paragraph (3) substitute – 3 The summary financial statement must – a be in such form, and b contain such information, as the Department may by regulations specify, including information derived from the company’s directors' report or (in the case of a quoted company) operating and financial review. 3A Nothing in this Article or regulations made under it prevents a company from including in its summary financial statement additional information derived from the company’s annual accounts, directors' remuneration report, directors' report or operating and financial review. . 8 In paragraph (4) – a in sub-paragraph (a) omit “, the directors' report”; b after sub-paragraph (a) insert – aa state whether it contains additional information derived from the directors' report or (in the case of a quoted company) the operating and financial review and, if so, state that it does not contain the full text of that report or review; ab state how an entitled person can obtain a full copy of the documents referred to in Article 246(1A); ac (in the case of a quoted company to which paragraph (2ZA) applies) state the address of the web site on which the operating and financial review is published, the place on that web site where it may be accessed and how it may be accessed; ; c in sub-paragraph (b) for “is consistent with those accounts and those reports and” substitute – i is consistent with the company’s annual accounts and directors' remuneration report and (where information derived from the directors' report or operating and financial review is included in the statement) with that report or review, and ii ; d after sub-paragraph (c) insert – ca state whether, in that report, the auditors' statements under – i Article 243(3) (whether directors' report is consistent with accounts), and ii (in the case of a quoted company) under Article 243(3A) (whether operating and financial review is consistent with accounts), were qualified or unqualified and, if either was qualified, set out the qualified statement in full together with any further material needed to understand the qualification; . Transitional provision 12 As respects companies' financial years beginning on or after 1st April 2005, regulations made by the Department under Article 259 of the 1986 Order before the date on which these Regulations come into operation have effect as if – a any requirement in the regulations that a summary financial statement contain information derived from the company’s directors' report was omitted, and b the regulations had been made (with those omissions) under Article 259 as amended by these Regulations. PART V REVISION OF DEFECTIVE REPORTS AND REVIEWS Voluntary revision of defective reports and reviews 13 1 Article 253 of the 1986 Order (voluntary revision of defective accounts, statements and reports) is amended as follows. 2 In paragraph (1) – a after “directors' report” insert “or operating and financial review”, and b for “revised statement or report” substitute “revised statement, report or review”. 3 In paragraph (2), for “or report”, in each place, substitute “, report or review”. 4 In paragraph (3), after “a revised directors' report” insert “or a revised operating and financial review”. 5 In sub-paragraphs (a) and (b) of paragraph (4), for “statement or report” substitute “, statement, report or review”. 6 In sub-paragraph (c) of paragraph (4) – a for “or report” (in the first place it occurs) substitute “, report or review”; b for “based on the previous accounts or report” substitute “containing information derived from the previous accounts, report or review”. Department’s notice in respect of reports and reviews 14 1 Article 253A of the 1986 Order (Department’s notice in respect of annual accounts) is amended as follows. 2 For paragraph (1) substitute – 1 Where – a copies of a company’s annual accounts, directors' report or operating and financial review have been sent out under Article 246, or b a copy of a company’s annual accounts, directors' report or operating and financial review has been laid before the company in general meeting or delivered to the registrar, and it appears to the Department that there is, or may be, a question whether the accounts, report or review comply with the requirements of this Order, it may give notice to the directors of the company indicating the respects in which it appears to the Department that such a question arises or may arise. . 3 In paragraph (2), for “or prepare revised accounts” substitute “, report or review or prepare revised accounts or a revised report or review”. 4 In paragraph (3), for the words from “no satisfactory explanation” onwards substitute – the directors have not – given a satisfactory explanation of the accounts, report or review, or revised the accounts, report or review so as to comply with the requirements of this Order, it may if it thinks fit apply to the court. . 5 For paragraph (4) substitute – 4 The provisions of this Article apply equally to revised annual accounts, revised directors' reports and revised operating and financial reviews, in which case they have effect as if the references to revised accounts, reports or reviews were references to further revised accounts, reports or reviews. . Application to court in respect of defective reports and reviews 15 1 Article 253B of the 1986 Order (application to court in respect of defective accounts) is amended as follows. 2 In paragraph (1) – a after “comply” insert “, or a directors' report or operating and financial review does not comply,”; and b at the end insert “or revised report or review”. 3 After paragraph (3) insert – 3A If the court orders the preparation of a revised directors' report or a revised operating and financial review it may give directions with respect to – a the review of the directors' report or operating and financial review by the auditors, b the revision of any directors' report, directors' remuneration report, operating and financial review or summary financial statement, c the taking of steps by the directors to bring the making of the order to the notice of persons likely to rely on the previous report or review, and d such other matters as the court thinks fit. . 4 In paragraph (4) – a after “that the accounts” insert “, report or review”; b in sub-paragraph (b), after “revised accounts” insert “or a revised report or review”; c after “defective accounts” insert “, report or review”; d for “the accounts were approved” substitute “of the approval of the accounts, report or review”; e for “their approval” substitute “the approval”; f for “their being approved” substitute “that approval”. 5 In paragraph (5), after “accounts” (in both places) insert “, report or review”. 6 For paragraph (7) substitute – 7 The provisions of this Article apply equally to revised annual accounts, revised directors' reports and revised operating and financial reviews, in which case they have effect as if the references to revised accounts, reports or reviews were references to further revised accounts, reports or reviews. . Persons authorised to apply to court in connection with defective reports and reviews 16 In paragraph (1) of Article 253C of the 1986 Order (other persons authorised to apply to court) – a in sub-paragraph (a), for “the accounting requirements of this Order” substitute “the requirements of this Order relating to accounts, directors' reports and operating and financial reviews”; and b in sub-paragraph (b), for “annual accounts of companies” substitute “companies' annual accounts, directors' reports and operating and financial reviews”. PART VI MINOR AND CONSEQUENTIAL AMENDMENTS 17 The Schedule makes minor and consequential amendments. Sealed with the Official Seal of the Department of Enterprise, Trade and Investment on 2nd March 2005. M. Bohill A senior officer of the Department of Enterprise, Trade and Investment