C32C31Part 16Audit
Pts. 1-39 (except for Pt. 7 and ss. 662-669), 45-47 extended (12.5.2011) by The Companies Act 2006 (Consequential Amendments and Transitional Provisions) Order 2011 (S.I. 2011/1265), art. 5(1), Sch. 1 para. 2
Chapter 4Removal, resignation, etc of auditors
Removal of auditor
C2510C1Resolution removing auditor from office
1
The members of a company may remove an auditor from office at any time.
2
This power is exercisable only—
a
by ordinary resolution at a meeting, and
b
in accordance with section 511 (special notice of resolution to remove auditor).
3
Nothing in this section is to be taken as depriving the person removed of compensation or damages payable to him in respect of the termination—
a
of his appointment as auditor, or
b
of any appointment terminating with that as auditor.
F544
An auditor may not be removed from office before the expiration of his term of office except—
a
by resolution under this section, or
b
in accordance with section 511A.
C4511C3Special notice required for resolution removing auditor from office
1
Special notice is required for a resolution at a general meeting of a company removing an auditor from office.
2
On receipt of notice of such an intended resolution the company must immediately send a copy of it to the auditor proposed to be removed.
3
The auditor proposed to be removed may make with respect to the intended resolution representations in writing to the company (not exceeding a reasonable length) and request their notification to members of the company.
4
The company must (unless the representations are received by it too late for it to do so)—
a
in any notice of the resolution given to members of the company, state the fact of the representations having been made, and
b
send a copy of the representations to every member of the company to whom notice of the meeting is or has been sent.
5
If a copy of any such representations is not sent out as required because received too late or because of the company's default, the auditor may (without prejudice to his right to be heard orally) require that the representations be read out at the meeting.
6
Copies of the representations need not be sent out and the representations need not be read at the meeting if, on the application either of the company or of any other person claiming to be aggrieved, the court is satisfied that the auditor is using the provisions of this section to secure needless publicity for defamatory matter.
The court may order the company's costs (in Scotland, expenses) on the application to be paid in whole or in part by the auditor, notwithstanding that he is not a party to the application.
511AF49Public interest companies: application to court to remove auditor from office
1
This section applies only to a public interest company.
2
The competent authority may apply to the court for an order removing an auditor of a company from office if the authority considers that there are proper grounds for removing the auditor from office.
3
The members of a company may apply to the court for an order removing an auditor of the company from office if the applicant or applicants consider that there are proper grounds for removing the auditor from office.
4
If the court is satisfied, on hearing an application under subsection (2), that there are proper grounds for removing the auditor from office, it may make an order removing the auditor from office.
5
If the court is satisfied, on hearing an application under subsection (3), that—
a
the applicants represent in total—
i
not less than 5% of the voting rights of all the members having a right to vote at a general meeting of the company, or
ii
not less than 5% in nominal value of the company’s share capital, and
b
there are proper grounds for removing the auditor from office,
the court may make an order removing the auditor from office.
6
For the purposes of this section, divergence of opinions on accounting treatments or audit procedures are not to be taken to be proper grounds for removing an auditor from office.
F567
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F7512Notice to registrar of resolution removing auditor from office
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C5C6513Rights of auditor who has been removed from office
1
An auditor who has been removed by resolution under section 510 F55or by order of the court under section 511A has, notwithstanding his removal, the rights conferred by section 502(2) in relation to any general meeting of the company—
a
at which his term of office would otherwise have expired, or
b
at which it is proposed to fill the vacancy caused by his removal.
2
In such a case the references in that section to matters concerning the auditor as auditor shall be construed as references to matters concerning him as a former auditor.
Failure to re-appoint auditor
C7514Failure to re-appoint auditor: special procedure required for written resolution
F351
This section applies where a resolution is proposed as a written resolution of a private company whose effect would be to appoint a person as auditor in place of a person (the “outgoing auditor”) who, at the time the resolution is proposed, is an auditor of the company and who is to cease to hold office at the end of a period for appointing auditors.
But this section does not apply if the auditor is to cease to hold office by virtue of section 510 F50 , 511A or 516.
2
This section also applies where a resolution is proposed as a written resolution of a private company whose effect would be to appoint a person as auditor where, at the time the resolution is proposed, the company does not have an auditor and the person proposed to be appointed is not a person (the “outgoing auditor”) who was an auditor of the company when the company last had an auditor.
But this is subject to subsection (2A).
2A
This section does not apply (by virtue of subsection (2)) if— ”
a
a period for appointing auditors has ended since the outgoing auditor ceased to hold office,
b
the outgoing auditor ceased to hold office by virtue of section 510 F51, 511A or 516, or
c
the outgoing auditor has previously had the opportunity to make representations with respect to a proposed resolution under subsection (4) of this section or an intended resolution under section 515(4).
3
F36Where this section applies, the company must send a copy of the proposed resolution to the person proposed to be appointed and to the outgoing auditor.
4
The outgoing auditor may, within 14 days after receiving the notice, make with respect to the proposed resolution representations in writing to the company (not exceeding a reasonable length) and request their circulation to members of the company.
5
The company must circulate the representations together with the copy or copies of the resolution circulated in accordance with section 291 (resolution proposed by directors) or section 293 (resolution proposed by members).
6
Where subsection (5) applies—
a
the period allowed under section 293(3) for service of copies of the proposed resolution is 28 days instead of 21 days, and
b
the provisions of section 293(5) and (6) (offences) apply in relation to a failure to comply with that subsection as in relation to a default in complying with that section.
7
Copies of the representations need not be circulated if, on the application either of the company or of any other person claiming to be aggrieved, the court is satisfied that the auditor is using the provisions of this section to secure needless publicity for defamatory matter.
The court may order the company's costs (in Scotland, expenses) on the application to be paid in whole or in part by the auditor, notwithstanding that he is not a party to the application.
8
If any requirement of this section is not complied with, the resolution is ineffective.
C8C9515Failure to re-appoint auditor: special notice required for resolution at general meeting
F251
Special notice is required for a resolution at a general meeting of a private company whose effect would be to appoint a person as auditor in place of a person (the “outgoing auditor”) who, at the time the notice is given, is an auditor of the company and who is to cease to hold office at the end of a period for appointing auditors.
But special notice is not required under this subsection if the auditor is to cease to hold office by virtue of section 510 F46, 511A or 516.
1A
Special notice is required for a resolution at a general meeting of a public company whose effect would be to appoint a person as auditor in place of a person (the “outgoing auditor”) who, at the time the notice is given, is an auditor of the company and who is to cease to hold office at the end of an accounts meeting.
But special notice is not required under this subsection if the auditor is to cease to hold office by virtue of section 510 F47, 511A or 516.
2
Special notice is required for a resolution at a general meeting of a company whose effect would be to appoint a person as auditor where, at the time the notice is given, the company does not have an auditor and the person proposed to be appointed is not a person (the “outgoing auditor”) who was an auditor of the company when the company last had an auditor.
But this is subject to subsection (2A).
2A
Special notice is not required under subsection (2) if—
a
a period for appointing auditors has ended or (as the case may be) an accounts meeting of the company has been held since the outgoing auditor ceased to hold office,
b
the outgoing auditor ceased to hold office by virtue of section 510 F48, 511A or 516, or
c
the outgoing auditor has previously had the opportunity to make representations with respect to an intended resolution under subsection (4) of this section or a proposed resolution under section 514(4).
3
4
The outgoing auditor may make with respect to the intended resolution representations in writing to the company (not exceeding a reasonable length) and request their notification to members of the company.
5
The company must (unless the representations are received by it too late for it to do so)—
a
in any notice of the resolution given to members of the company, state the fact of the representations having been made, and
b
send a copy of the representations to every member of the company to whom notice of the meeting is or has been sent.
6
If a copy of any such representations is not sent out as required because received too late or because of the company's default, the outgoing auditor may (without prejudice to his right to be heard orally) require that the representations be read out at the meeting.
7
Copies of the representations need not be sent out and the representations need not be read at the meeting if, on the application either of the company or of any other person claiming to be aggrieved, the court is satisfied that the auditor is using the provisions of this section to secure needless publicity for defamatory matter.
The court may order the company's costs (in Scotland, expenses) on the application to be paid in whole or in part by the outgoing auditor, notwithstanding that he is not a party to the application.
Resignation of auditor
C10C11516Resignation of auditor
1
An auditor of a company may resign his office by F37sending a notice to that effect to the company.
2
F39Where the company is a public interest company, the notice is not effective unless it is accompanied by the statement required by section 519.
3
An effective notice of resignation operates to bring the auditor's term of office to an end as of the date on which the notice is F38received or on such later date as may be specified in it.
F24517Notice to registrar of resignation of auditor
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C12C13518Rights of resigning auditor
1
This section applies where an F8auditor's (A's) notice of resignation is accompanied by a statement under section 519 except where—.
a
the company is a non-public interest company, and
b
the statement includes a statement to the effect that A considers that none of the reasons for A's ceasing to hold office, and no matters (if any) connected with A's ceasing to hold office, need to be brought to the attention of members or creditors of the company (as required by section 519(3B)).
2
He may F11send with the notice F12an authenticated requisition calling on the directors of the company forthwith duly to convene a general meeting of the company for the purpose of receiving and considering such explanation of the F9reasons for, and matters connected with, his resignation as he may wish to place before the meeting.
3
He may request the company to circulate to its members—
a
before the meeting convened on his requisition, or
b
before any general meeting at which his term of office would otherwise have expired or at which it is proposed to fill the vacancy caused by his resignation,
a statement in writing (not exceeding a reasonable length) of the F10reasons for, and matters connected with, his resignation.
4
The company must (unless the statement is received too late for it to comply)—
a
in any notice of the meeting given to members of the company, state the fact of the statement having been made, and
b
send a copy of the statement to every member of the company to whom notice of the meeting is or has been sent.
5
The directors must within 21 days from the date F13on which the company receives a requisition under this section proceed duly to convene a meeting for a day not more than 28 days after the date on which the notice convening the meeting is given.
6
If default is made in complying with subsection (5), every director who failed to take all reasonable steps to secure that a meeting was convened commits an offence.
7
A person guilty of an offence under this section is liable—
a
on conviction on indictment, to a fine;
b
on summary conviction to a fine not exceeding the statutory maximum.
8
If a copy of the statement mentioned above is not sent out as required because received too late or because of the company's default, the auditor may (without prejudice to his right to be heard orally) require that the statement be read out at the meeting.
9
Copies of a statement need not be sent out and the statement need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the court is satisfied that the auditor is using the provisions of this section to secure needless publicity for defamatory matter.
The court may order the company's costs (in Scotland, expenses) on such an application to be paid in whole or in part by the auditor, notwithstanding that he is not a party to the application.
10
An auditor who has resigned has, notwithstanding his resignation, the rights conferred by section 502(2) in relation to any such general meeting of the company as is mentioned in subsection (3)(a) or (b) above.
In such a case the references in that section to matters concerning the auditor as auditor shall be construed as references to matters concerning him as a former auditor.
Statement by auditor on ceasing to hold office
C14C15519Statement by auditor to be F17sent to company
F281
An auditor of a public interest company who is ceasing to hold office (at any time and for any reason) must send to the company a statement of the reasons for doing so.
2
An auditor (“A”) of a non-public interest company who is ceasing to hold office must send to the company a statement of the reasons for doing so unless A satisfies the first or second condition.
2A
The first condition is that A is ceasing to hold office—
a
in the case of a private company, at the end of a period for appointing auditors;
b
in the case of a public company, at the end of an accounts meeting.
2B
The second condition is that—
a
A's reasons for ceasing to hold office are all exempt reasons (as to which see section 519A(3)), and
b
there are no matters connected with A's ceasing to hold office that A considers need to be brought to the attention of members or creditors of the company.
3
A statement under this section must include—
a
the auditor's name and address;
b
the number allocated to the auditor on being entered in the register of auditors kept under section 1239;
c
the company's name and registered number.
3A
Where there are matters connected with an auditor's ceasing to hold office that the auditor considers need to be brought to the attention of members or creditors of the company, the statement under this section must include details of those matters.
3B
Where—
a
an auditor (“A”) of a non-public interest company is required by subsection (2) to send a statement, and
b
A considers that none of the reasons for A's ceasing to hold office, and no matters (if any) connected with A's ceasing to hold office, need to be brought to the attention of members or creditors of the company,
A's statement under this section must include a statement to that effect.
4
a
in the case of resignation, along with the notice of resignation;
b
in the case of failure to seek re-appointment, not less than 14 days before the end of the time allowed for next appointing an auditor;
c
in any other case, not later than the end of the period of 14 days beginning with the date on which he ceases to hold office.
5
A person ceasing to hold office as auditor who fails to comply with this section commits an offence.
6
In proceedings for such an offence it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence.
7
A person guilty of an offence under this section is liable—
a
on conviction on indictment, to a fine;
b
on summary conviction, to a fine not exceeding the statutory maximum.
F18
Where an offence under this section is committed by a body corporate, every officer of the body who is in default also commits the offence. For this purpose—
a
any person who purports to act as director, manager or secretary of the body is treated as an officer of the body, and
b
if the body is a company, any shadow director is treated as an officer of the company.
519AF18Meaning of “public interest company”, “non-public interest company” and “exempt reasons”
1
In this Chapter—
F52“public interest company” means a company which is—
- a
an issuer whose transferable securities are admitted to trading on a regulated market;
- b
a credit institution within the meaning given by Article 4(1)(1) of Regulation (EU) No. 575/2013 of the European Parliament and of the Council, other than one listed in Article 2 of Directive 2013/36/EU of the European Parliament and of the Council on access to the activity of credit institutions and investment firms; or
- c
an insurance undertaking within the meaning given by Article 2(1) of Council Directive 1991/674/EEC of the European Parliament and of the Council on the annual accounts and consolidated accounts of insurance undertakings;
- a
F532
For the purposes of the definition of “public interest company”—
“issuer” has the same meaning as in Part 6 of the Financial Services and Markets Act 2000 (see section 102A(6));
“regulated market” has the same meaning as in Part 6 of the Financial Services and Markets Act 2000 (see section 103(1));
“transferable securities” means anything which is a transferable security for the purposes of F57Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments.
3
In the application of this Chapter to an auditor (“A”) of a company ceasing to hold office, the following are “exempt reasons”—
a
A is no longer to carry out statutory audit work within the meaning of Part 42 (see section 1210(1));
b
the company is, or is to become, exempt from audit under section 477, 479A or 480, or from the requirements of this Part under section 482, and intends to include in its balance sheet a statement of the type described in section 475(2);
c
the company is a subsidiary undertaking of a parent undertaking that is incorporated in the United Kingdom and—
i
the parent undertaking prepares group accounts, and
ii
A is being replaced as auditor of the company by the auditor who is conducting, or is to conduct, an audit of the group accounts;
d
the company is being wound up under Part 4 of the Insolvency Act 1986 or Part 5 of the Insolvency (Northern Ireland) Order 1989 ( S.I. 1989/2405 (N.I. 19)), whether voluntarily or by the court, or a petition under Part 4 of that Act or Part 5 of that Order for the winding up of the company has been presented and not finally dealt with or withdrawn.
4
But the reason described in subsection (3)(c) is only an exempt reason if the auditor who is conducting, or is to conduct, an audit of the group accounts is also conducting, or is also to conduct, the audit (if any) of the accounts of each of the subsidiary undertakings (of the parent undertaking) that is incorporated in the United Kingdom and included in the consolidation.
5
The Secretary of State may by order amend the definition of “public interest company” in subsection (1).
6
An order under subsection (5) is subject to negative resolution procedure.
C16C17520Company's duties in relation to statement
1
This section applies where F31a company receives from an auditor (“A”) who is ceasing to hold office a statement under section 519 except where—
a
the company is a non-public interest company, and
b
the statement includes a statement to the effect that A considers that none of the reasons for A's ceasing to hold office, and no matters (if any) connected with A's ceasing to hold office, need to be brought to the attention of members or creditors of the company (as required by section 519(3B)).
2
F32Where this section applies, the company must within 14 days of the F33receipt of the statement either—
a
send a copy of it to every person who under section 423 is entitled to be sent copies of the accounts, or
b
apply to the court.
3
If it applies to the court, the company must notify the auditor of the application.
4
If the court is satisfied that the auditor is using the provisions of section 519 to secure needless publicity for defamatory matter—
a
it shall direct that copies of the statement need not be sent out, and
b
it may further order the company's costs (in Scotland, expenses) on the application to be paid in whole or in part by the auditor, even if he is not a party to the application.
The company must within 14 days of the court's decision send to the persons mentioned in subsection (2)(a) a statement setting out the effect of the order.
5
If no such direction is made the company must send copies of the statement to the persons mentioned in subsection (2)(a) within 14 days of the court's decision or, as the case may be, of the discontinuance of the proceedings.
6
In the event of default in complying with this section an offence is committed by every officer of the company who is in default.
7
In proceedings for such an offence it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence.
8
A person guilty of an offence under this section is liable—
a
on conviction on indictment, to a fine;
b
on summary conviction, to a fine not exceeding the statutory maximum.
C18C19521Copy of statement to be sent to registrar
F41A1
This section applies where an auditor (“A”) of a company sends a statement to the company under section 519 except where—
a
the company is a non-public interest company, and
b
the statement includes a statement to the effect that A considers that none of the reasons for A's ceasing to hold office, and no matters (if any) connected with A's ceasing to hold office, need to be brought to the attention of members or creditors of the company (as required by section 519(3B)).
1
2
If an application to the court is made under section 520 and the auditor subsequently receives notice under subsection (5) of that section, he must within seven days of receiving the notice send a copy of the statement to the registrar.
3
An auditor who fails to comply with subsection (1) or (2) commits an offence.
4
In proceedings for such an offence it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence.
5
A person guilty of an offence under this section is liable—
a
on conviction on indictment, to a fine;
b
on summary conviction, to a fine not exceeding the statutory maximum.
F26
Where an offence under this section is committed by a body corporate, every officer of the body who is in default also commits the offence. For this purpose—
a
any person who purports to act as director, manager or secretary of the body is treated as an officer of the body, and
b
if the body is a company, any shadow director is treated as an officer of the company.
C20C21522Duty of auditor to F14send statement to appropriate audit authority
F341
Where an auditor of a company sends a statement under section 519, the auditor must at the same time send a copy of the statement to the appropriate audit authority.
5
A person ceasing to hold office as auditor who fails to comply with this section commits an offence.
6
If that person is a firm an offence is committed by—
a
the firm, and
b
every officer of the firm who is in default.
7
In proceedings for an offence under this section it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence.
8
A person guilty of an offence under this section is liable—
a
on conviction on indictment, to a fine;
b
on summary conviction, to a fine not exceeding the statutory maximum.
C22C23523Duty of company to notify appropriate audit authority
F431
This section applies if an auditor is ceasing to hold office—
a
in the case of a private company, at any time other than at the end of a period for appointing auditors;
b
in the case of a public company, at any time other than at the end of an accounts meeting.
1A
But this section does not apply if the company reasonably believes that the only reasons for the auditor's ceasing to hold office are exempt reasons (as to which see section 519A(3)).
2
Where this section applies, the company must give notice to the appropriate audit authority that the auditor is ceasing to hold office.
2A
The notice is to take the form of a statement by the company of what the company believes to be the reasons for the auditor's ceasing to hold office and must include the information listed in section 519(3).
This is subject to subsection (2C).
2B
Subsection (2C) applies where—
a
the company receives a statement from the auditor under section 519,
b
the statement is sent at the time required by section 519(4), and
c
the company agrees with the contents of the statement.
2C
Where this subsection applies, the notice may instead take the form of a copy of the statement endorsed by the company to the effect that it agrees with the contents of the statement.
3
A notice under this section must be given within the period of 28 days beginning with the day on which the auditor ceases to hold office.
4
If a company fails to comply with this section, an offence is committed by—
a
the company, and
b
every officer of the company who is in default.
5
In proceedings for such an offence it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence.
6
A person guilty of an offence under this section is liable—
a
on conviction on indictment, to a fine;
b
on summary conviction, to a fine not exceeding the statutory maximum.
C24C25524F15Provision of information to accounting authorities
F441
Where the appropriate audit authority receives a statement under section 522 or a notice under section 523, the authority may forward to the accounting authorities—
a
a copy of the statement or notice, and
b
any other information the authority has received from the auditor or the company concerned in connection with the auditor's ceasing to hold office.
2
The accounting authorities are—
a
the Secretary of State, and
C26b
any person authorised by the Secretary of State for the purposes of section 456 (revision of defective accounts: persons authorised to apply to court).
F453
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4
If the court has made an order under section 520(4) directing that copies of the statement need not be sent out by the company, sections 460 and 461 (restriction on further disclosure) apply in relation to the copies sent to the accounting authorities as they apply to information obtained under section 459 (power to require documents etc).
C27C28525Meaning of “appropriate audit authority” F16...
1
In sections 522, 523 and 524 “appropriate audit authority” means—
a
F19in relation to an auditor of a public interest company (other than an Auditor General)—
i
the Secretary of State, or
ii
if the Secretary of State has delegated functions under section 1252 to a body whose functions include receiving the F20statement or notice in question, that body;
F3a
in the case of a major audit (other than one conducted by an Auditor General), the Financial Reporting Council Limited;
b
F21in relation to an auditor of a non-public interest company (other than an Auditor General), the relevant supervisory body.
F5 “Supervisory body” and “Independent Supervisor” have the same meaning as in Part 42 (statutory auditors) (see F6sections 1217 and 1228).
F232
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F233
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Supplementary
C30526C29Effect of casual vacancies
If an auditor ceases to hold office for any reason, any surviving or continuing auditor or auditors may continue to act.
Pt. 16 applied (with modifications) (8.12.2017) by The Risk Transformation Regulations 2017 (S.I. 2017/1212), regs. 1(2), 162, 163 (with reg. 189)