Companies Act 1989

Group accounts shall comply so far as practicable with the provisions of Schedule 4 as if the undertakings included in the consolidation (“the group”) were a single company. In particular, for the purposes of paragraph 59 of that Schedule (dealings with or interests in group undertakings) as it applies to group accounts— Where the parent company is treated as an investment company for the purposes of Part V of that Schedule (special provisions for investment companies) the group shall be similarly treated.

The consolidated balance sheet and profit and loss account shall incorporate in full the information contained in the individual accounts of the undertakings included in the consolidation, subject to the adjustments authorised or required by the following provisions of this Schedule and to such other adjustments (if any) as may be appropriate in accordance with generally accepted accounting principles or practice. If the financial year of a subsidiary undertaking included in the consolidation differs from that of the parent company, the group accounts shall be made up—

Where assets and liabilities to be included in the group accounts have been valued or otherwise determined by undertakings according to accounting rules differing from those used for the group accounts, the values or amounts shall be adjusted so as to accord with the rules used for the group accounts. If it appears to the directors of the parent company that there are special reasons for departing from sub-paragraph (1) they may do so, but particulars of any such departure, the reasons for it and its effect shall be given in a note to the accounts. The adjustments referred to in this paragraph need not be made if they are not material for the purpose of giving a true and fair view.

Any differences of accounting rules as between a parent company’s individual accounts for a financial year and its group accounts shall be disclosed in a note to the latter accounts and the reasons for the difference given.

Amounts which in the particular context of any provision of this Schedule are not material may be disregarded for the purposes of that provision.

Debts and claims between undertakings included in the consolidation, and income and expenditure relating to transactions between such undertakings, shall be eliminated in preparing the group accounts. Where profits and losses resulting from transactions between undertakings included in the consolidation are included in the book value of assets, they shall be eliminated in preparing the group accounts. The elimination required by sub-paragraph (2) may be effected in proportion to the group’s interest in the shares of the undertakings. Sub-paragraphs (1) and (2) need not be complied with if the amounts concerned are not material for the purpose of giving a true and fair view.

The following provisions apply where an undertaking becomes a subsidiary undertaking of the parent company. That event is referred to in those provisions as an “acquisition”, and references to the “undertaking acquired” shall be construed accordingly.

An acquisition shall be accounted for by the acquisition method of accounting unless the conditions for accounting for it as a merger are met and the merger method of accounting is adopted.

The acquisition method of accounting is as follows. The identifiable assets and liabilities of the undertaking acquired shall be included in the consolidated balance sheet at their fair values as at the date of acquisition. In this paragraph the “identifiable” assets or liabilities of the undertaking acquired means the assets or liabilities which are capable of being disposed of or discharged separately, without disposing of a business of the undertaking. The income and expenditure of the undertaking acquired shall be brought into the group accounts only as from the date of the acquisition. There shall be set off against the acquisition cost of the interest in the shares of the undertaking held by the parent company and its subsidiary undertakings the interest of the parent company and its subsidiary undertakings in the adjusted capital and reserves of the undertaking acquired. For this purpose— The resulting amount if positive shall be treated as goodwill, and if negative as a negative consolidation difference.

The conditions for accounting for an acquisition as a merger are— The reference in sub-paragraph (1)(a) to the “relevant shares” in an undertaking acquired is to those carrying unrestricted rights to participate both in distributions and in the assets of the undertaking upon liquidation.

The merger method of accounting is as follows. The assets and liabilities of the undertaking acquired shall be brought into the group accounts at the figures at which they stand in the undertaking’s accounts, subject to any adjustment authorised or required by this Schedule. The income and expenditure of the undertaking acquired shall be included in the group accounts for the entire financial year, including the period before the acquisition. The group accounts shall show corresponding amounts relating to the previous financial year as if the undertaking acquired had been included in the consolidation throughout that year. There shall be set off against the aggregate of— the nominal value of the issued share capital of the undertaking acquired held by the parent company and its subsidiary undertakings. The resulting amount shall be shown as an adjustment to the consolidated reserves. In sub-paragraph (5)(a) “qualifying shares” means—

Where a group is acquired, paragraphs 9 to 11 apply with the following adaptations. References to shares of the undertaking acquired shall be construed as references to shares of the parent undertaking of the group. Other references to the undertaking acquired shall be construed as references to the group; and references to the assets and liabilities, income and expenditure and capital and reserves of the undertaking acquired shall be construed as references to the assets and liabilities, income and expenditure and capital and reserves of the group after making the set-offs and other adjustments required by this Schedule in the case of group accounts.

The following information with respect to acquisitions taking place in the financial year shall be given in a note to the accounts. There shall be stated— and in relation to an acquisition which significantly affects the figures shown in the group accounts, the following further information shall be given. The composition and fair value of the consideration for the acquisition given by the parent company and its subsidiary undertakings shall be stated. The profit or loss of the undertaking or group acquired shall be stated— and there shall also be stated the date on which the financial year referred to in paragraph (a) began. Where the acquisition method of accounting has been adopted, the book values immediately prior to the acquisition, and the fair values at the date of acquisition, of each class of assets and liabilities of the undertaking or group acquired shall be stated in tabular form, including a statement of the amount of any goodwill or negative consolidation difference arising on the acquisition, together with an explanation of any significant adjustments made. Where the merger method of accounting has been adopted, an explanation shall be given of any significant adjustments made in relation to the amounts of the assets and liabilities of the undertaking or group acquired, together with a statement of any resulting adjustment to the consolidated reserves (including the re-statement of opening consolidated reserves). In ascertaining for the purposes of sub-paragraph (4), (5) or (6) the profit or loss of a group, the book values and fair values of assets and liabilities of a group or the amount of the assets and liabilities of a group, the set-offs and other adjustments required by this Schedule in the case of group accounts shall be made.

There shall also be stated in a note to the accounts the cumulative amount of goodwill resulting from acquisitions in that and earlier financial years which has been written off. That figure shall be shown net of any goodwill attributable to subsidiary undertakings or businesses disposed of prior to the balance sheet date.

Where during the financial year there has been a disposal of an undertaking or group which significantly affects the figures shown in the group accounts, there shall be stated in a note to the accounts—

The information required by paragraph 13, 14 or 15 above need not be disclosed with respect to an undertaking which— if in the opinion of the directors of the parent company the disclosure would be seriously prejudicial to the business of that undertaking or to the business of the parent company or any of its subsidiary undertakings and the Secretary of State agrees that the information should not be disclosed.

The formats set out in Schedule 4 have effect in relation to group accounts with the following additions. In the Balance Sheet Formats a further item headed “Minority interests” shall be added— and under that item shall be shown the amount of capital and reserves attributable to shares in subsidiary undertakings included in the consolidation held by or on behalf of persons other than the parent company and its subsidiary undertakings. In the Profit and Loss Account Formats a further item headed “Minority interests” shall be added— and under that item shall be shown the amount of any profit or loss on ordinary activities attributable to shares in subsidiary undertakings included in the consolidation held by or on behalf of persons other than the parent company and its subsidiary undertakings. In the Profit and Loss Account Formats a further item headed “Minority interests” shall be added— and under that item shall be shown the amount of any profit or loss on extraordinary activities attributable to shares in subsidiary undertakings included in the consolidation held by or on behalf of persons other than the parent company and its subsidiary undertakings. For the purposes of paragraph 3(3) and (4) of Schedule 4 (power to adapt or combine items)—

The interest of the group in subsidiary undertakings excluded from consolidation under section 229(4) (undertakings with activities different from those of undertakings included in the consolidation), and the amount of profit or loss attributable to such an interest, shall be shown in the consolidated balance sheet or, as the case may be, in the consolidated profit and loss account by the equity method of accounting (including dealing with any goodwill arising in accordance with paragraphs 17 to 19 and 21 of Schedule 4).

Where an undertaking included in the consolidation manages another undertaking jointly with one or more undertakings not included in the consolidation, that other undertaking (“the joint venture”) may, if it is not— be dealt with in the group accounts by the method of proportional consolidation. The provisions of this Part relating to the preparation of consolidated accounts apply, with any necessary modifications, to proportional consolidation under this paragraph.

An “associated undertaking” means an undertaking in which an undertaking included in the consolidation has a participating interest and over whose operating and financial policy it exercises a significant influence, and which is not— Where an undertaking holds 20 per cent. or more of the voting rights in another undertaking, it shall be presumed to exercise such an influence over it unless the contrary is shown. The voting rights in an undertaking means the rights conferred on shareholders in respect of their shares or, in the case of an undertaking not having a share capital, on members, to vote at general meetings of the undertaking on all, or substantially all, matters. The provisions of paragraphs 5 to 11 of Schedule 10A (rights to be taken into account and attribution of rights) apply in determining for the purposes of this paragraph whether an undertaking holds 20 per cent. or more of the voting rights in another undertaking.

The formats set out in Schedule 4 have effect in relation to group accounts with the following modifications. In the Balance Sheet Formats the items headed “Participating interests”, that is— shall be replaced by two items, “Interests in associated undertakings” and “Other participating interests”. In the Profit and Loss Account Formats, the items headed “Income from participating interests”, that is— shall be replaced by two items, “Income from interests in associated undertakings” and “Income from other participating interests”.

The interest of an undertaking in an associated undertaking, and the amount of profit or loss attributable to such an interest, shall be shown by the equity method of accounting (including dealing with any goodwill arising in accordance with paragraphs 17 to 19 and 21 of Schedule 4). Where the associated undertaking is itself a parent undertaking, the net assets and profits or losses to be taken into account are those of the parent and its subsidiary undertakings (after making any consolidation adjustments). The equity method of accounting need not be applied if the amounts in question are not material for the purpose of giving a true and fair view.

The following information shall be given where at the end of the financial year the company has subsidiary undertakings. The name of each subsidiary undertaking shall be stated. There shall be stated with respect to each subsidiary undertaking— The reason why the company is not required to prepare group accounts shall be stated. If the reason is that all the subsidiary undertakings of the company fall within the exclusions provided for in section 229, it shall be stated with respect to each subsidiary undertaking which of those exclusions applies.

There shall be stated in relation to shares of each class held by the company in a subsidiary undertaking— The shares held by or on behalf of the company itself shall be distinguished from those attributed to the company which are held by or on behalf of a subsidiary undertaking.

There shall be disclosed with respect to each subsidiary undertaking— That information need not be given if the company is exempt by virtue of section 228 from the requirement to prepare group accounts (parent company included in accounts of larger group). That information need not be given if— Information otherwise required by this paragraph need not be given if it is not material. For the purposes of this paragraph the “relevant financial year” of a subsidiary undertaking is—

Where the financial year of one or more subsidiary undertakings did not end with that of the company, there shall be stated in relation to each such undertaking— Instead of the dates required by paragraph (b) being given for each subsidiary undertaking the earliest and latest of those dates may be given.

There shall be disclosed— in so far as the matter which is the subject of the qualification or note is not covered by the company’s own accounts and is material from the point of view of its members. The aggregate amount of the total investment of the company in the shares of subsidiary undertakings shall be stated by way of the equity method of valuation, unless— In so far as information required by this paragraph is not obtainable, a statement to that effect shall be given instead.

The number, description and amount of the shares in and debentures of the company held by or on behalf of its subsidiary undertakings shall be disclosed. Sub-paragraph (1) does not apply in relation to shares or debentures in the case of which the subsidiary undertaking is concerned as personal representative or, subject as follows, as trustee. The exception for shares or debentures in relation to which the subsidiary undertaking is concerned as trustee does not apply if the company, or any subsidiary undertaking of the company, is beneficially interested under the trust, otherwise than by way of security only for the purposes of a transaction entered into by it in the ordinary course of a business which includes the lending of money. Schedule 2 to this Act has effect for the interpretation of the reference in sub-paragraph (3) to a beneficial interest under a trust.

The information required by paragraphs 8 and 9 shall be given where at the end of the financial year the company has a significant holding in an undertaking which is not a subsidiary undertaking of the company. A holding is significant for this purpose if—

The name of the undertaking shall be stated. There shall be stated— There shall also be stated—

Where the company has a significant holding in an undertaking amounting to 20 per cent. or more of the nominal value of the shares in the undertaking, there shall also be stated— That information need not be given if— That information need not be given in respect of an undertaking if— Information otherwise required by this paragraph need not be given if it is not material. For the purposes of this paragraph the “relevant financial year” of an undertaking is—

This paragraph applies to arrangements attracting merger relief, that is, where a company allots shares in consideration for the issue, transfer or cancellation of shares in another body corporate (“the other company”) in circumstances such that section 130 of this Act (share premium account) does not, by virtue of section 131(2) (merger relief), apply to the premiums on the shares. If the company makes such an arrangement during the financial year, the following information shall be given— Where the company made such an arrangement during the financial year, or during either of the two preceding financial years, and there is included in the company’s profit and loss account— then, the net amount of that profit or loss or, as the case may be, the part so attributable shall be shown, together with an explanation of the transactions to which the information relates. For the purposes of this paragraph the time of the arrangement shall be taken to be—

Where the company is a subsidiary undertaking, the following information shall be given with respect to the parent undertaking of— The name of the parent undertaking shall be stated. There shall be stated— If copies of the group accounts referred to in sub-paragraph (1) are available to the public, there shall also be stated the addresses from which copies of the accounts can be obtained.

Where the company is a subsidiary undertaking, the following information shall be given with respect to the company (if any) regarded by the directors as being the company’s ultimate parent company. The name of that company shall be stated. If known to the directors, there shall be stated— In this paragraph “company” includes any body corporate.

References in this Part of this Schedule to shares held by a company shall be construed as follows. For the purposes of paragraphs 2 to 5 (information about subsidiary undertakings)— For the purposes of paragraphs 7 to 9 (information about undertakings other than subsidiary undertakings)— For the purposes of any of those provisions, shares held by way of security shall be treated as held by the person providing the security—

In this Part of this Schedule “the group” means the group consisting of the parent company and its subsidiary undertakings.

The following information shall be given with respect to the undertakings which are subsidiary undertakings of the parent company at the end of the financial year. The name of each undertaking shall be stated. There shall be stated— It shall also be stated whether the subsidiary undertaking is included in the consolidation and, if it is not, the reasons for excluding it from consolidation shall be given. It shall be stated with respect to each subsidiary undertaking by virtue of which of the conditions specified in section 258(2) or (4) it is a subsidiary undertaking of its immediate parent undertaking. That information need not be given if the relevant condition is that specified in subsection (2)(a) of that section (holding of a majority of the voting rights) and the immediate parent undertaking holds the same proportion of the shares in the undertaking as it holds voting rights.

The following information shall be given with respect to the shares of a subsidiary undertaking held— and the information under paragraphs (a) and (b) shall (if different) be shown separately. There shall be stated—

There shall be shown with respect to each subsidiary undertaking not included in the consolidation— That information need not be given if the group’s investment in the undertaking is included in the accounts by way of the equity method of valuation or if— Information otherwise required by this paragraph need not be given if it is not material. For the purposes of this paragraph the “relevant financial year” of a subsidiary undertaking is—

The following information shall be given with respect to subsidiary undertakings excluded from consolidation. There shall be disclosed— in so far as the matter which is the subject of the qualification or note is not covered by the consolidated accounts and is material from the point of view of the members of the parent company. In so far as information required by this paragraph is not obtainable, a statement to that effect shall be given instead.

Where the financial year of one or more subsidiary undertakings did not end with that of the company, there shall be stated in relation to each such undertaking— Instead of the dates required by paragraph (b) being given for each subsidiary undertaking the earliest and latest of those dates may be given.

The number, description and amount of the shares in and debentures of the company held by or on behalf of its subsidiary undertakings shall be disclosed. Sub-paragraph (1) does not apply in relation to shares or debentures in the case of which the subsidiary undertaking is concerned as personal representative or, subject as follows, as trustee. The exception for shares or debentures in relation to which the subsidiary undertaking is concerned as trustee does not apply if the company or any of its subsidiary undertakings is beneficially interested under the trust, otherwise than by way of security only for the purposes of a transaction entered into by it in the ordinary course of a business which includes the lending of money. Schedule 2 to this Act has effect for the interpretation of the reference in sub-paragraph (3) to a beneficial interest under a trust.

The following information shall be given where an undertaking is dealt with in the consolidated accounts by the method of proportional consolidation in accordance with paragraph 19 of Schedule 4A (joint ventures)— Where the financial year of the undertaking did not end with that of the company, there shall be stated the date on which a financial year of the undertaking last ended before that date.

The following information shall be given where an undertaking included in the consolidation has an interest in an associated undertaking. The name of the associated undertaking shall be stated. There shall be stated— The following information shall be given with respect to the shares of the undertaking held— and the information under paragraphs (a) and (b) shall be shown separately. There shall be stated— In this paragraph “associated undertaking” has the meaning given by paragraph 20 of Schedule 4A; and the information required by this paragraph shall be given notwithstanding that paragraph 22(3) of that Schedule (materiality) applies in relation to the accounts themselves.

The information required by paragraphs 24 and 25 shall be given where at the end of the financial year the parent company has a significant holding in an undertaking which is not one of its subsidiary undertakings and does not fall within paragraph 21 (joint ventures) or paragraph 22 (associated undertakings). A holding is significant for this purpose if—

The name of the undertaking shall be stated. There shall be stated— The following information shall be given with respect to the shares of the undertaking held by the parent company. There shall be stated—

Where the company has a significant holding in an undertaking amounting to 20 per cent. or more of the nominal value of the shares in the undertaking, there shall also be stated— That information need not be given in respect of an undertaking if— Information otherwise required by this paragraph need not be given if it is not material. For the purposes of this paragraph the “relevant financial year” of an undertaking is—

The information required by paragraphs 27 and 28 shall be given where at the end of the financial year the group has a significant holding in an undertaking which is not a subsidiary undertaking of the parent company and does not fall within paragraph 21 (joint ventures) or paragraph 22 (associated undertakings). A holding is significant for this purpose if—

The name of the undertaking shall be stated. There shall be stated— The following information shall be given with respect to the shares of the undertaking held by the group. There shall be stated—

Where the holding of the group amounts to 20 per cent. or more of the nominal value of the shares in the undertaking, there shall also be stated— That information need not be given if— Information otherwise required by this paragraph need not be given if it is not material. For the purposes of this paragraph the “relevant financial year” of an outside undertaking is—

This paragraph applies to arrangements attracting merger relief, that is, where a company allots shares in consideration for the issue, transfer or cancellation of shares in another body corporate (“the other company”) in circumstances such that section 130 of this Act (share premium account) does not, by virtue of section 131(2) (merger relief), apply to the premiums on the shares. If the parent company made such an arrangement during the financial year, the following information shall be given— Where the parent company made such an arrangement during the financial year, or during either of the two preceding financial years, and there is included in the consolidated profit and loss account— then, the net amount of that profit or loss or, as the case may be, the part so attributable shall be shown, together with an explanation of the transactions to which the information relates. For the purposes of this paragraph the time of the arrangement shall be taken to be—

Where the parent company is itself a subsidiary undertaking, the following information shall be given with respect to that parent undertaking of the company which heads— The name of the parent undertaking shall be stated. There shall be stated— If copies of the group accounts referred to in sub-paragraph (1) are available to the public, there shall also be stated the addresses from which copies of the accounts can be obtained.

Where the parent company is itself a subsidiary undertaking, the following information shall be given with respect to the company (if any) regarded by the directors as being that company’s ultimate parent company. The name of that company shall be stated. If known to the directors, there shall be stated— In this paragraph “company” includes any body corporate.

References in this Part of this Schedule to shares held by the parent company or the group shall be construed as follows. For the purposes of paragraphs 16, 22(4) and (5) and 23 to 25 (information about holdings in subsidiary and other undertakings)— References to shares held by the group are to any shares held by or on behalf of the parent company or any of its subsidiary undertakings; but there shall be treated as not held by the group any shares held on behalf of a person other than the parent company or any of its subsidiary undertakings. Shares held by way of security shall be treated as held by the person providing the security—

The company may deliver a copy of an abbreviated version of the full balance sheet, showing only those items to which a letter or Roman number is assigned in the balance sheet format adopted under Part I of Schedule 4, but in other respects corresponding to the full balance sheet. If a copy of an abbreviated balance sheet is delivered, there shall be disclosed in it or in a note to the company’s accounts delivered— The provisions of section 233 as to the signing of the copy of the balance sheet delivered to the registrar apply to a copy of an abbreviated balance sheet delivered in accordance with this paragraph.

A copy of the company’s profit and loss account need not be delivered.

Of the information required by Part III of Schedule 4 (information to be given in notes to accounts if not given in the accounts themselves) only the information required by the following provisions need be given— paragraph 36 (accounting policies), paragraph 38 (share capital), paragraph 39 (particulars of allotments), paragraph 42 (fixed assets), so far as it relates to those items to which a letter or Roman number is assigned in the balance sheet format adopted, paragraph 48(1) and (4) (particulars of debts), paragraph 58(1) (basis of conversion of foreign currency amounts into sterling), paragraph 58(2) (corresponding amounts for previous financial year), so far as it relates to amounts stated in a note to the company’s accounts by virtue of a requirement of Schedule 4 or under any other provision of this Act. Of the information required by Schedule 5 to be given in notes to the accounts, the information required by the following provisions need not be given— paragraph 4 (financial years of subsidiary undertakings), paragraph 5 (additional information about subsidiary undertakings), paragraph 6 (shares and debentures of company held by subsidiary undertakings), paragraph 10 (arrangements attracting merger relief). Of the information required by Schedule 6 to be given in notes to the accounts, the information required by Part I (directors’ and chairman’s emoluments, pensions and compensation for loss of office) need not be given.

A copy of the directors’ report need not be delivered.

The company may deliver a profit and loss account in which the following items listed in the profit and loss account formats set out in Part I of Schedule 4 are combined as one item under the heading “gross profit or loss”— Items 1, 2, 3 and 6 in Format 1; Items 1 to 5 in Format 2; Items A.1, B.1 and B.2 in Format 3; Items A.1, A.2 and B.1 to B.4 in Format 4.

The information required by paragraph 55 of Schedule 4 (particulars of turnover) need not be given.

Where the directors of a company take advantage of the exemptions conferred by Part I or Part II of this Schedule, the company’s balance sheet shall contain— The statements shall appear in the balance sheet immediately above the signature required by section 233.

If the directors of a company propose to take advantage of the exemptions conferred by Part I or II of this Schedule, it is the auditors’ duty to provide them with a report stating whether in their opinion the company is entitled to those exemptions and whether the documents to be proposed to be delivered in accordance with this Schedule are properly prepared. The accounts delivered shall be accompanied by a special report of the auditors stating that in their opinion— In such a case a copy of the auditors’ report under section 235 need not be delivered separately, but the full text of it shall be reproduced in the special report; and if the report under section 235 is qualified there shall be included in the special report any further material necessary to understand the qualification. Section 236 (signature of auditors’ report) applies to a special report under this paragraph as it applies to a report under section 235.

Paragraphs 7 and 8 above do not apply where the company is exempt by virtue of section 250 (dormant companies) from the obligation to appoint auditors.

Where advantage is taken of the exemptions conferred by Part I or II of this Schedule, section 240 (requirements in connection with publication of accounts) has effect with the following adaptations. Accounts delivered in accordance with this Schedule and accounts in the form in which they would be required to be delivered apart from this Schedule are both “statutory accounts” for the purposes of that section. References in that section to the auditors’ report under section 235 shall be read, in relation to accounts delivered in accordance with this Schedule, as references to the special report under paragraph 8 above.

The following descriptions of undertaking shall not be excluded from consolidation under section 229(4) (exclusion of undertakings whose activities are different from those of the undertakings consolidated)— For the purposes of paragraph (a) “banking” means the carrying on of a deposit-taking business within the meaning of the Banking Act 1987.

In paragraph 1 of Schedule 4A (application to group accounts of provisions applicable to individual accounts), the reference in sub-paragraph (1) to the provisions of Schedule 4 shall be construed as a reference to the provisions of Part I of this Schedule; and accordingly— The general application of the provisions of Part I of this Schedule in place of those of Schedule 4 is subject to the following provisions.

The rules in paragraph 21 of Schedule 4 relating to the treatment of goodwill, and the rules in paragraphs 17 to 19 of that Schedule (valuation of fixed assets) so far as they relate to goodwill, apply for the purpose of dealing with any goodwill arising on consolidation. Goodwill shall be shown as a separate item in the balance sheet under an appropriate heading; and this applies notwithstanding anything in paragraph 10(1)(b) or (2) of Part I of this Schedule (under which goodwill, patents and trade marks may be stated in the company’s individual accounts as a single item).

The information required by paragraphs 17 and 20 to 22 of Schedule 4A (minority interests and associated undertakings) to be shown under separate items in the formats set out in Part I of Schedule 4 shall be shown separately in the balance sheet and profit and loss account under appropriate headings.

Where a banking or insurance company is entitled to the exemptions conferred by paragraph 27 or 28 of Part I of this Schedule, a group headed by that company is similarly entitled. Paragraphs 27(4), 28(2) and 28A (accounts not to be taken to be other than true and fair; duty of auditors) apply accordingly where advantage is taken of those exemptions in relation to group accounts.

The following provisions apply where the parent company of a banking group has a subsidiary undertaking which— Information as to the nature and terms of the operation shall be given in a note to the group accounts and there shall be appended to the copy of the group accounts delivered to the registrar in accordance with section 242 a copy of the undertaking’s latest individual accounts and, if it is a parent undertaking, its latest group accounts. If the accounts appended are required by law to be audited, a copy of the auditors’ report shall also be appended. If any document required to be appended is in a language other than English, the directors shall annex to the copy of that document delivered a translation of it into English, certified in the prescribed manner to be a correct translation. The above requirements are subject to the following qualifications— Where a copy of an undertaking’s accounts is required to be appended to the copy of the group accounts delivered to the registrar, that fact shall be stated in a note to the group accounts. Subsections (2) to (4) of section 242 (penalties, &c. in case of default) apply in relation to the requirements of this paragraph as regards the delivery of documents to the registrar as they apply in relation to the requirements of subsection (1) of that section.

Part II of Schedule 6 (loans, quasi-loans and other dealings) does not apply for the purposes of accounts prepared by a banking company, or a company which is the holding company of a banking company, in relation to a transaction or arrangement of a kind mentioned in section 330, or an agreement to enter into such a transaction or arrangement, to which that banking company is a party.

Part III of Schedule 6 (other transactions, arrangements and agreements) applies for the purposes of accounts prepared by a banking company, or a company which is the holding company of a banking company, only in relation to a transaction, arrangement or agreement made by that banking company for— References in that Part to officers of the company shall be construed accordingly as including references to such persons. In this paragraph “director” includes a shadow director. For the purposes of that Part as it applies by virtue of this paragraph, a company which a person does not control shall not be treated as connected with him. Section 346 of this Act applies for the purposes of this paragraph as regards the interpretation of references to a person being connected with a director or controlling a company.

This paragraph applies where a company prepares individual accounts in accordance with the special provisions of this Part relating to banking or insurance companies. If in the financial year to which the accounts relate the company has issued any shares or debentures, the directors’ report shall state the reason for making the issue, the classes of shares or debentures issued and, as respects each class, the number of shares or amount of debentures issued and the consideration received by the company for the issue.

This paragraph applies where a company prepares group accounts in accordance with the special provisions of this Part relating to banking or insurance groups. If in the course of the financial year to which the accounts relate the group carried on business of two or more classes (other than banking or discounting or a class prescribed for the purposes of paragraph 17(2) of Part I of Schedule 9) that in the opinion of the directors differ substantially from each other, there shall be contained in the directors’ report a statement of— In sub-paragraph (2) “the group” means the undertakings included in the consolidation. For the purposes of this paragraph classes of business which in the opinion of the directors do not differ substantially from each other shall be treated as one class.

This paragraph applies where a company prepares individual or group accounts in accordance with the special provisions of this Part relating to banking or insurance companies or groups. There shall be stated in the directors’ report— The average number of persons employed shall be determined by adding together the number of persons employed (whether throughout the week or not) in each week of the financial year and dividing that total by the number of weeks in the financial year. The aggregate amount of the remuneration paid or payable means the total amount of remuneration paid or payable in respect of the financial year; and for this purpose remuneration means gross remuneration and includes bonuses, whether payable under contract or not. The information required by this paragraph need not be given if the average number of persons employed is less than 100. No account shall be taken for the purposes of this paragraph of persons who worked wholly or mainly outside the United Kingdom. This paragraph does not apply to a company which is a wholly-owned subsidiary of a company incorporated in Great Britain.

The provisions of this Schedule explain expressions used in section 258 (parent and subsidiary undertakings) and otherwise supplement that section.

In section 258(2)(a) and (d) the references to the voting rights in an undertaking are to the rights conferred on shareholders in respect of their shares or, in the case of an undertaking not having a share capital, on members, to vote at general meetings of the undertaking on all, or substantially all, matters. In relation to an undertaking which does not have general meetings at which matters are decided by the exercise of voting rights, the references to holding a majority of the voting rights in the undertaking shall be construed as references to having the right under the constitution of the undertaking to direct the overall policy of the undertaking or to alter the terms of its constitution.

In section 258(2)(b) the reference to the right to appoint or remove a majority of the board of directors is to the right to appoint or remove directors holding a majority of the voting rights at meetings of the board on all, or substantially all, matters. An undertaking shall be treated as having the right to appoint to a directorship if— A right to appoint or remove which is exercisable only with the consent or concurrence of another person shall be left out of account unless no other person has a right to appoint or, as the case may be, remove in relation to that directorship.

For the purposes of section 258(2)(c) an undertaking shall not be regarded as having the right to exercise a dominant influence over another undertaking unless it has a right to give directions with respect to the operating and financial policies of that other undertaking which its directors are obliged to comply with whether or not they are for the benefit of that other undertaking. A “control contract” means a contract in writing conferring such a right which— This paragraph shall not be read as affecting the construction of the expression “actually exercises a dominant influence” in section 258(4)(a).

Rights which are exercisable only in certain circumstances shall be taken into account only— Rights which are normally exercisable but are temporarily incapable of exercise shall continue to be taken into account.

Rights held by a person in a fiduciary capacity shall be treated as not held by him.

Rights held by a person as nominee for another shall be treated as held by the other. Rights shall be regarded as held as nominee for another if they are exercisable only on his instructions or with his consent or concurrence.

Rights attached to shares held by way of security shall be treated as held by the person providing the security—

Rights shall be treated as held by a parent undertaking if they are held by any of its subsidiary undertakings. Nothing in paragraph 7 or 8 shall be construed as requiring rights held by a parent undertaking to be treated as held by any of its subsidiary undertakings. For the purposes of paragraph 8 rights shall be treated as being exercisable in accordance with the instructions or in the interests of an undertaking if they are exercisable in accordance with the instructions of or, as the case may be, in the interests of any group undertaking.

The voting rights in an undertaking shall be reduced by any rights held by the undertaking itself.

References in any provision of paragraphs 6 to 10 to rights held by a person include rights falling to be treated as held by him by virtue of any other provision of those paragraphs but not rights which by virtue of any such provision are to be treated as not held by him.

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Section 42 of the Harbours Act 1964 (accounts and reports of statutory harbour undertakers) is amended as follows. For subsection (2) substitute— In subsection (6) (application of provisions of the Companies Act 1985)— “parent undertaking” and “subsidiary undertaking” have the same meaning as in Part VII of the Companies Act 1985;

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In section 11(4) of the Transport Act 1981, for “section 235” substitute “ section 234 ”.

In section 24(5) of the Iron and Steel Act 1982 (meaning of “directors’ report”) for the words from “which, under section 235” to the end substitute “ which is required to be prepared under section 234 of the Companies Act 1985 ”.

In this sub-paragraph “subsidiary undertaking” has the same meaning as in Part VII of the Companies Act 1985.

In Schedule 2 to the Patents, Designs and Marks Act 1986 (service marks), in paragraph 1(2) (provisions in which reference to trade mark includes service mark) for sub-paragraph (ii) substitute—.

The Company Directors Disqualification Act 1986 is amended as follows. In section 3(3)(b) (default orders)— In Schedule 1, for paragraph 5 substitute—.

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The Income and Corporation Taxes Act 1988 is amended as follows. In section 180 (annual return of registered profit-related pay scheme), in subsection (3) for “section 242(3)” substitute “ section 244(3) ”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

In section 33 of the Dartford–Thurrock Crossing Act 1988 (duty to lay before Parliament copies of accounts of persons appointed to levy tolls), for subsection (2) substitute—.

A supervisory body may apply to the Secretary of State for an order declaring it to be a recognised supervisory body for the purposes of this Part of this Act. Any such application— At any time after receiving an application and before determining it the Secretary of State may require the applicant to furnish additional information. The directions and requirements given or imposed under sub-paragraphs (2) and (3) may differ as between different applications. Any information to be furnished to the Secretary of State under this paragraph shall, if he so requires, be in such form or verified in such manner as he may specify. Every application shall be accompanied by a copy of the applicant’s rules and of any guidance issued by the applicant which is intended to have continuing effect and is issued in writing or other legible form.

The Secretary of State may, on an application duly made in accordance with paragraph 1 and after being furnished with all such information as he may require under that paragraph, make or refuse to make an order (a “recognition order”) declaring the applicant to be a recognised supervisory body for the purposes of this Part of this Act. The Secretary of State shall not make a recognition order unless it appears to him, from the information furnished by the body and having regard to any other information in his possession, that the requirements of Part II of this Schedule are satisfied as respects that body. The Secretary of State may refuse to make a recognition order in respect of a body if he considers that its recognition is unnecessary having regard to the existence of one or more other bodies which maintain and enforce rules as to the appointment and conduct of company auditors and which have been or are likely to be recognised. Where the Secretary of State refuses an application for a recognition order he shall give the applicant a written notice to that effect specifying which requirements in the opinion of the Secretary of State are not satisfied or stating that the application is refused on the ground mentioned in sub-paragraph (3). A recognition order shall state the date on which it takes effect.

A recognition order may be revoked by a further order made by the Secretary of State if at any time it appears to him— An order revoking a recognition order shall state the date on which it takes effect and that date shall not be earlier than three months after the day on which the revocation order is made. Before revoking a recognition order the Secretary of State shall give written notice of his intention to do so to the recognised body, take such steps as he considers reasonably practicable for bringing the notice to the attention of members of the body and publish it in such manner as he thinks appropriate for bringing it to the attention of any other persons who are in his opinion likely to be affected. A notice under sub-paragraph (3) shall state the reasons for which the Secretary of State proposes to act and give particulars of the rights conferred by sub-paragraph (5). A body on which a notice is served under sub-paragraph (3), any member of the body and any other person who appears to the Secretary of State to be affected may within three months after the date of service or publication, or within such longer time as the Secretary of State may allow, make written representations to the Secretary of State and, if desired, oral representations to a person appointed for that purpose by the Secretary of State; and the Secretary of State shall have regard to any representations made in accordance with this sub-paragraph in determining whether to revoke the recognition order. If in any case the Secretary of State considers it essential to do so in the public interest he may revoke a recognition order without regard to the restriction imposed by sub-paragraph (2) and notwithstanding that no notice has been given or published under sub-paragraph (3) or that the time for making representations in pursuance of such a notice has not expired. An order revoking a recognition order may contain such transitional provisions as the Secretary of State thinks necessary or expedient. A recognition order may be revoked at the request or with the consent of the recognised body and any such revocation shall not be subject to the restrictions imposed by sub-paragraphs (1) and (2) or the requirements of sub-paragraphs (3) to (5). On making an order revoking a recognition order the Secretary of State shall give the body written notice of the making of the order, take such steps as he considers reasonably practicable for bringing the making of the order to the attention of members of the body and publish a notice of the making of the order in such manner as he thinks appropriate for bringing it to the attention of any other persons who are in his opinion likely to be affected.

The body must have rules to the effect that a person is not eligible for appointment as a company auditor unless— This does not prevent the body from imposing more stringent requirements. A firm which has ceased to comply with the conditions mentioned in sub-paragraph (1)(b) may be permitted to remain eligible for appointment as a company auditor for a period of not more than three months.

The following provisions explain what is meant in paragraph 4(1)(b)(ii) by a firm being “controlled by qualified persons”. For this purpose references to a person being qualified are, in relation to an individual, to his holding an appropriate qualification, and in relation to a firm, to its being eligible for appointment as a company auditor. A firm shall be treated as controlled by qualified persons if, and only if— A majority of the members of a firm means— A majority of the members of the management body of a firm means— The provisions of paragraphs 5 to 11 of Schedule 10A to the Companies Act 1985 (rights to be taken into account and attribution of rights) apply for the purposes of this paragraph.

The body must have adequate rules and practices designed to ensure that the persons eligible under its rules for appointment as a company auditor are fit and proper persons to be so appointed. The matters which the body may take into account for this purpose in relation to a person must include— In sub-paragraph (2)(b) and (c) “controller”, in relation to a body corporate, means a person who either alone or with any associate or associates is entitled to exercise or control the exercise of 15 per cent. or more of the rights to vote on all, or substantially all, matters at general meetings of the body or another body corporate of which it is a subsidiary.

The body must have adequate rules and practices designed to ensure— The body must participate in arrangements within paragraph 17, and the rules and practices mentioned in sub-paragraph (1) above must include provision requiring compliance with any standards for the time being determined under such arrangements. The body must also have adequate rules and practices designed to ensure that no firm is eligible under its rules for appointment as a company auditor unless the firm has arrangements to prevent— from being able to exert any influence over the way in which an audit is conducted in circumstances in which that influence would be likely to affect the independence or integrity of the audit.

The body must have rules and practices as to the technical standards to be applied in company audit work and as to the manner in which those standards are to be applied in practice. The body must participate in arrangements within paragraph 18, and the rules and practices mentioned in sub-paragraph (1) above must include provision requiring compliance with any standards for the time being determined under such arrangements.

The body must have rules and practices designed to ensure that persons eligible under its rules for appointment as a company auditor continue to maintain an appropriate level of competence in the conduct of company audits.

The body must have adequate arrangements and resources for the effective monitoring and enforcement of compliance with its rules. The arrangements for monitoring may make provision for that function to be performed on behalf of the body (and without affecting its responsibility) by any other body or person who is able and willing to perform it.

The rules and practices of the body relating to— must be fair and reasonable and include adequate provision for appeals.

The body must have effective arrangements for the investigation of complaints— The arrangements may make provision for the whole or part of that function to be performed by and to be the responsibility of a body or person independent of the body itself.

The body must have adequate rules or arrangements designed to ensure that persons eligible under its rules for appointment as a company auditor take such steps as may reasonably be expected of them to secure that they are able to meet claims against them arising out of company audit work. This may be achieved by professional indemnity insurance or other appropriate arrangements.

The body must have rules requiring persons eligible under its rules for appointment as a company auditor to comply with any obligations imposed on them by regulations under section 35 or 36.

The body must have satisfactory arrangements for taking account, in framing its rules, of the cost to those to whom the rules would apply of complying with those rules and any other controls to which they are subject.

The body must be able and willing to promote and maintain high standards of integrity in the conduct of company audit work and to co-operate, by the sharing of information and otherwise, with the Secretary of State and any other authority, body or person having responsibility in the United Kingdom for the qualification, supervision or regulation of auditors.

The arrangements referred to in paragraph 7(1A) are appropriate funded arrangements—

The arrangements referred to in paragraph 8(2) are appropriate funded arrangements—

The arrangements referred to in paragraph 10A(1) are appropriate funded arrangements— In this paragraph—

The arrangements referred to in paragraph 12A(1) are appropriate funded arrangements— In this paragraph—

For the purposes of any of paragraphs 17, 18, 19 and 20, arrangements are “funded”arrangements if, in the event of their providing for the payment of costs of maintaining the arrangements, such costs are to be paid by the body in accordance with the arrangements. Arrangements can qualify as arrangements within any of paragraphs 17, 18, 19(1) and 20(1) even though the matters for which they provide are more extensive in any respect than those mentioned in that provision.

A qualifying body may apply to the Secretary of State for an order declaring a qualification offered by it to be a recognised professional qualification for the purposes of this Part of this Act. Any such application— At any time after receiving an application and before determining it the Secretary of State may require the applicant to furnish additional information. The directions and requirements given or imposed under sub-paragraphs (2) and (3) may differ as between different applications. Any information to be furnished to the Secretary of State under this section shall, if he so requires, be in such form or verified in such manner as he may specify. In the case of examination standards, the verification required may include independent moderation of the examinations over such period as the Secretary of State considers necessary. Every application shall be accompanied by a copy of the applicant’s rules and of any guidance issued by it which is intended to have continuing effect and is issued in writing or other legible form.

The Secretary of State may, on an application duly made in accordance with paragraph 1 and after being furnished with all such information as he may require under that paragraph, make or refuse to make an order (a “recognition order”) declaring the qualification in respect of which the application was made to be a recognised professional qualification for the purposes of this Part of this Act. In this Part of this Act a “recognised qualifying body” means a qualifying body offering a recognised professional qualification. The Secretary of State shall not make a recognition order unless it appears to him, from the information furnished by the applicant and having regard to any other information in his possession, that the requirements of Part II of this Schedule are satisfied as respects the qualification. Where the Secretary of State refuses an application for a recognition order he shall give the applicant a written notice to that effect specifying which requirements, in his opinion, are not satisfied. A recognition order shall state the date on which it takes effect.

A recognition order may be revoked by a further order made by the Secretary of State if at any time it appears to him— An order revoking a recognition order shall state the date on which it takes effect and that date shall not be earlier than three months after the day on which the revocation order is made. Before revoking a recognition order the Secretary of State shall give written notice of his intention to do so to the qualifying body, take such steps as he considers reasonably practicable for bringing the notice to the attention of persons holding the qualification or in the course of studying for it and publish it in such manner as he thinks appropriate for bringing it to the attention of any other persons who are in his opinion likely to be affected. A notice under sub-paragraph (3) shall state the reasons for which the Secretary of State proposes to act and give particulars of the rights conferred by sub-paragraph (5). A body on which a notice is served under sub-paragraph (3), any person holding the qualification or in the course of studying for it and any other person who appears to the Secretary of State to be affected may within three months after the date of service or publication, or within such longer time as the Secretary of State may allow, make written representations to the Secretary of State and, if desired, oral representations to a person appointed for that purpose by the Secretary of State; and the Secretary of State shall have regard to any representations made in accordance with this subsection in determining whether to revoke the recognition order. If in any case the Secretary of State considers it essential to do so in the public interest he may revoke a recognition order without regard to the restriction imposed by sub-paragraph (2) and notwithstanding that no notice has been given or published under sub-paragraph (3) or that the time for making representations in pursuance of such a notice has not expired. An order revoking a recognition order may contain such transitional provisions as the Secretary of State thinks necessary or expedient. A recognition order may be revoked at the request or with the consent of the qualifying body and any such revocation shall not be subject to the restrictions imposed by sub-paragraphs (1) and (2) or the requirements of sub-paragraphs (3) to (5). On making an order revoking a recognition order the Secretary of State shall give the qualifying body written notice of the making of the order, take such steps as he considers reasonably practicable for bringing the making of the order to the attention of persons holding the qualification or in the course of studying for it and publish a notice of the making of the order in such manner as he thinks appropriate for bringing it to the attention of any other persons who are in his opinion likely to be affected.

The qualification must only be open to persons who have attained university entrance level or have a sufficient period of professional experience. In relation to a person who has not been admitted to a university or other similar establishment in the United Kingdom, attaining university entrance level means— The assessment, tests and oral examination referred to in sub-paragraph (2)(b) may be conducted by the qualifying body or by some other body approved by the Secretary of State.

The qualification must be restricted to persons who have completed a course of theoretical instruction in the subjects prescribed for the purposes of paragraph 7 or have a sufficient period of professional experience.

The references in paragraphs 4 and 5 to a sufficient period of professional experience are to not less than seven years’ experience in a professional capacity in the fields of finance, law and accountancy. Periods of theoretical instruction in the fields of finance, law and accountancy may be deducted from the required period of professional experience, provided the instruction— but the period of professional experience may not be so reduced by more than four years. The period of professional experience together with the practical training required in the case of persons satisfying the requirement in paragraph 5 by virtue of having a sufficient period of professional experience must not be shorter than the course of theoretical instruction referred to in that paragraph and the practical training required in the case of persons satisfying the requirement of that paragraph by virtue of having completed such a course.

The qualification must be restricted to persons who have passed an examination (at least part of which is in writing) testing— and requiring a standard of attainment at least equivalent to that required to obtain a degree from a university or similar establishment in the United Kingdom. The qualification may be awarded to a person without his theoretical knowledge of a subject being tested by examination if he has passed a university or other examination of equivalent standard in that subject or holds a university degree or equivalent qualification in it. The qualification may be awarded to a person without his ability to apply his theoretical knowledge of a subject in practice being tested by examination if he has received practical training in that subject which is attested by an examination or diploma recognised by the Secretary of State for the purposes of this paragraph. Regulations under this paragraph shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

The qualification must be restricted to persons who have completed at least three years’ practical training of which— For this purpose “company audit work” includes the work of a person appointed as auditor under the Companies (Northern Ireland) Order 1986 or under the law of a country or territory outside the United Kingdom where it appears to the Secretary of State that the law and practice with respect to the audit of company accounts is similar to that in the United Kingdom. The training must be given by persons approved by the body offering the qualification as persons as to whom the body is satisfied, in the light of undertakings given by them and the supervision to which they are subject (whether by the body itself or some other body or organisation), that they will provide adequate training. At least two-thirds of the training must be given by a fully-qualified auditor, that is, a person—

The body offering the qualification must have— The arrangements must include arrangements for monitoring the standard of its examinations and the adequacy of the practical training given by the persons approved by it for that purpose.

The Secretary of State shall before deciding whether to make a recognition order in respect of a supervisory body or professional qualification send to the Office of Fair Trading (in this Schedule referred to as “the OFT”) a copy of the rules and of any guidance which the Secretary of State is required to consider in making that decision together with such other information as the Secretary of State considers will assist the OFT. The OFT shall consider whether the rules or guidance have, or are intended or likely to have, to any significant extent the effect of restricting, distorting or preventing competition, and shall report to the Secretary of State; and the Secretary of State shall have regard to its report in deciding whether to make a recognition order. The Secretary of State shall not make a recognition order if it appears to him that the rules and any guidance of which copies are furnished with the application have, or are intended or likely to have, to any significant extent the effect of restricting, distorting or preventing competition, unless it appears to him that the effect is reasonably justifiable having regard to the purposes of this Part of this Act.

Where a recognised supervisory or qualifying body amends, revokes or adds to its rules or guidance in a manner which may reasonably be regarded as likely— it shall within seven days give the Secretary of State written notice of the amendment, revocation or addition. Notice need not be given under sub-paragraph (1) of the revocation of guidance not intended to have continuing effect or issued otherwise than in writing or other legible form, or of any amendment or addition to guidance which does not result in or consist of guidance which is intended to have continuing effect and is issued in writing or other legible form.

The OFT shall keep under review the rules made or guidance issued by a recognised supervisory or qualifying body, and if it is of the opinion that any rules or guidance of such a body have, or are intended or likely to have, to any significant extent the effect of restricting, distorting or preventing competition, it shall report its opinion to the Secretary of State, stating what in its opinion the effect is or is likely to be. The Secretary of State shall send to the OFTcopies of any notice received by him under paragraph 2, together with such other information as he considers will assist the OFT. The OFT may report to the Secretary of State its opinion that any matter mentioned in such a notice does not have, and is not intended or likely to have, to any significant extent the effect of restricting, distorting or preventing competition. The OFT may from time to time consider whether— have, or are intended or likely to have, to any significant extent the effect of restricting, distorting or preventing competition and, if so, what that effect is or is likely to be; and if it is of that opinion it shall make a report to the Secretary of State stating its opinion and what the effect is or is likely to be. The practices relevant for the purposes of sub-paragraph (4)(b) in the case of a recognised supervisory body are practices engaged in for the purposes of, or in connection with, appointment as a company auditor or the conduct of company audit work by persons who— The practices relevant for the purposes of sub-paragraph (4)(b) in the case of a recognised qualifying body are—

The following powers are exercisable by the OFT for the purpose of investigating any matter in connection with its functions under paragraph 1or 3. The OFT may by a notice in writing require any person to produce, at a time and place specified in the notice, to the OFT or to any person appointed by it for the purpose, any documents which are specified or described in the notice and which are documents in his custody or under his control and relating to any matter relevant to the investigation. The OFT may by a notice in writing require any person to furnish to the OFT such information as may be specified or described in the notice, and specify the time within which and the manner and form in which any such information is to be furnished. A person shall not under this paragraph be required to produce any document or disclose any information which he would be entitled to refuse to produce or disclose on grounds of legal professional privilege in proceedings in the High Court or on the grounds of confidentiality as between client and professional legal adviser in proceedings in the Court of Session. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A person commits an offence if he intentionally alters, suppresses or destroys a document which he has been required to produce by a notice under paragraph 4. A person who commits an offence under sub-paragraph (1) shall be liable—

The OFT may, if it thinks fit, publish any report made by it under paragraph 1 or 3. It shall exclude from a published report, so far as practicable, any matter which relates to the affairs of a particular person (other than the supervisory or qualifying body concerned) the publication of which would or might in its opinion seriously and prejudicially affect the interests of that person.

The powers conferred by this section are exercisable by the Secretary of State if, having received and considered a report from the OFT under paragraph 3(1) or (4), it appears to him that— have, or are intended or likely to have, to any significant extent the effect of restricting, distorting or preventing competition and that that effect is greater than is reasonably justifiable having regard to the purposes of this Part of this Act. The powers are— The provisions of paragraph 3(2) to (5), (7) and (9) of Schedule 11 or, as the case may be, Schedule 12 have effect in relation to the revocation of a recognition order under sub-paragraph (2)(a) above as they have effect in relation to the revocation of such an order under that Schedule. Before the Secretary of State exercises the power conferred by sub-paragraph (2)(b) or (c) above he shall— A notice under sub-paragraph (4) shall give particulars of the manner in which the Secretary of State proposes to exercise the power in question and state the reasons for which he proposes to act; and the statement of reasons may include matters contained in any report received by him under paragraph 4.

A direction under paragraph 6 is, on the application of the Secretary of State, enforceable by injunction or, in Scotland, by an order under section 45 of the Court of Session Act 1988. The fact that any rules made by a recognised supervisory or qualifying body have been altered by the Secretary of State, or pursuant to a direction of the Secretary of State, under paragraph 6 does not preclude their subsequent alteration or revocation by that body. In determining for the purposes of this Part of this Schedule whether any guidance has, or is likely to have, any particular effect the Secretary of State and the OFT may assume that the persons to whom it is addressed will act in conformity with it.

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The Chapter I prohibition does not apply to an agreement for the constitution of a recognised supervisory or qualifying body to the extent to which it relates to— The Chapter I prohibition does not apply to an agreement the parties to which consist of or include— to the extent to which the agreement consists of provisions the inclusion of which in the agreement is required or contemplated by the rules or guidance of that body. The Chapter I prohibition does not apply to the practices mentioned in paragraph 3(4)(a) and (b) above. Where a recognition order is revoked, sub-paragraphs (1) to (3) above are to continue to apply for a period of six months beginning with the day on which the revocation takes effect, as if the order were still in force. In this paragraph— and expressions used in this paragraph which are also used in Part I of the Competition Act 1998 are to be interpreted in the same way as for the purposes of that Part of that Act. In the application of this paragraph to decisions and concerted practices, references to provisions of an agreement are to be read as references to elements of a decision or concerted practice.

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The exchange must have default rules which, in the event of a member of the exchange appearing to be unable to meet his obligations in respect of one or more market contracts, enable action to be taken in respect of unsettled market contracts to which he is a party. The rules may authorise the taking of the same or similar action in relation to a member who appears to be likely to become unable to meet his obligations in respect of one or more market contracts. The rules must enable action to be taken in respect of all unsettled market contracts, other than those entered into by a recognised clearing house for the purposes of or in connection with the provision of clearing services for the exchange. As regards contracts falling within section 155(2)(b) above, the rules must contain provision corresponding to that required by paragraphs 9 to 11 below in the case of a UK clearing house. As regards contracts falling within section 155(2)(a) above the rules must contain provision complying with paragraphs 2 and 3 below.

The rules must provide for all rights and liabilities between those party as principal to unsettled market contracts to which the defaulter is party as principal to be discharged and for there to be paid by one party to the other such sum of money (if any) as may be determined in accordance with the rules. The rules must further provide— The rules may make special provision with respect to, or exclude from the provisions required by sub-paragraphs (1) and (2), contracts of any description prescribed for the purposes of this sub-paragraph by regulations made by the Secretary of State. The reference in sub-paragraph (1) to rights and liabilities between those party as principal to unsettled market contracts does not include rights and liabilities—

The exchange must have adequate arrangements for securing that—

The rules may make the same or similar provision in relation to designated non-members as in relation to members of the exchange. If such provision is made, the exchange must have adequate procedures— The procedures shall be designed to secure that a person is not or does not remain designated if failure by him to meet his obligations in respect of one or more market contracts would be unlikely adversely to affect the operation of the market, and that a description of persons is not or does not remain designated if failure by a person of that description to meet his obligations in respect of one or more market contracts would be unlikely adversely to affect the operation of the market. The exchange must have adequate arrangements—

The rules may make provision for the whole or part of the functions mentioned in paragraphs 1 to 4 to be performed by another body or person on behalf of the exchange.

The exchange must be able and willing to co-operate, by the sharing of information and otherwise, with the Secretary of State, any relevant office-holder and any other authority or body having responsibility for any matter arising out of, or connected with, the default of a member of the exchange or any designated non-member.

Where the exchange provides clearing services, paragraph 14 below applies in respect of any margined transactions effected by or on behalf of the exchange as it applies in relation to a clearing house.

The clearing house must have default rules which, in the event of a member of the clearing house appearing to be unable to meet his obligations in respect of one or more market contracts, enable action to be taken to close out his position in relation to all unsettled market contracts to which he is a party. The rules may authorise the taking of the same or similar action where a member appears to be likely to become unable to meet his obligations in respect of one or more market contracts.

The rules must provide for all rights and liabilities of the defaulter under or in respect of unsettled market contracts to be discharged and for there to be paid by or to the defaulter such sum of money (if any) as may be determined in accordance with the rules. The rules must further provide—

The reference in paragraph 9 to the rights and liabilities of a defaulter under or in respect of an unsettled market contract includes (without prejudice to the generality of that provision) rights and liabilities arising in consequence of action taken under provisions of the rules authorising— A “corresponding contract” means a contract on the same terms (except as to price or premium) as the market contract, but under which the person who is the buyer under the market contract agrees to sell and the person who is the seller under the market contract agrees to buy. This sub-paragraph applies with any necessary modifications in relation to a market contract which is not an agreement to sell. The reference in paragraph 9 to the rights and liabilities of a defaulter under or in respect of an unsettled market contract does not include, where he acts as agent, rights or liabilities of his arising out of the relationship of principal and agent.

The clearing house must have adequate arrangements for securing that parties to unsettled market contracts with a defaulter are notified as soon as reasonably practicable of the default and of any decision taken under the rules in relation to contracts to which they are a party.

The rules may make provision for the whole or part of the functions mentioned in paragraphs 8 to 11 to be performed by another body or person on behalf of the clearing house.

The clearing house must be able and willing to co-operate, by the sharing of information and otherwise, with the Secretary of State, any relevant office-holder and any other authority or body having responsibility for any matter arising out of, or connected with, the default of a member of the clearing house.

The rules of the clearing house must provide that, in the event of a default, margin provided by the defaulter for his own account is not to be applied to meet a shortfall on a client account. This is without prejudice to the requirements of any relevant regulations under section 55 of the Financial Services Act 1986 (clients’ money).