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When is a Group not a Group for accounting purposes?

 XYZ Holdings Plc, an unquoted UK registered company. The company has over 200  "B"  shareholders with no voting rights, who have subscribed around £4.7 million. The "A" shares, which carry voting rights, are owned by the founders who put in just £200.

The capital put into XYZ Holdings Plc is actually spent by a company called XYZ Ltd. Both companies share the same offices and the same directors.  XYZ Holdings Plc owns 99.999% of XYZ Ltd in the form of "B" shares; the remaining 0.001% (just two "A" shares) are held by founders.

The Prospctus for XYZ Holdings Plc stated that the two companies would together form the "XYZ Group". However they file individual accounts, each with a different year-end date and have never submitted Group Accounts to Companies House. Having different year-end dates obviously makes the accounts less than transparent, added to which several years of accounts for both companies have never been submitted to Companies House and never shown to the shareholders. My understanding is that under the Companies Act a group of companies is required to file Group Accounts.  

Their auditors tell me that the companies are "not a Group for accounting purposes".  I would like to know whether a Group of companies like this can elect not to produce Group Accounts just because it suits them and which law allows them to do so.


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04th Oct 2010 16:25

Different Chairman?

It may be that the Chairman of each company are different individuals.

In this way, provided there is an eqaul shareholding between A and B in the holding company, but A is held as Chairman of holding company and B the Chairman of the other company  then they may  file separately.

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04th Oct 2010 18:17

Re: When is a Group not a Group for accounting purposes


To:  crisdxuk

Thanks for your suggestion. However in this case the chairman of both companies are one and the same person. This is how it has always been since the companies were formed.


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05th Oct 2010 08:40

Sniff test...

I have to say the structure and approach to the accounts do not pass my sniff test!

Having said that, the current legislation is in Sections 398 and 399 of the Companies Act 2006. In brief summary: If the Parent company is a small* company, it does not have to prepare Group accounts, otherwise it must. Moving on (well back actually) to Sections 383 and 384, a parent company is only small if the group is small but, more importantly, a company can not be small if it is a Public company (S384 1 (a) ). You say it is a Plc so it would appear to be a Public company (see Sections 4 and 58) and would have to prepare group accounts. Unless the exemptions in S399 (3) et seq apply - in reality only the S405 exemptions are possibly relevant to this situation and that seems unlikely - but should be checked.

The remaining question is whether a group exists. This is where it gets more murky. The effective definition of a group is in Sections 1161 and 1162. Broadly it needs to be consolidated if a majority of the voting rights are held by the plc, or it has the right to appoint members to the Board, or there are contractual relationships which give dominant influence, or if dominant influence or control is exercised over it, or the plc and subsidiary are managed on a unified basis. This last is S1162 (4) (b) and may be the best point of attack. Accounting Standards also expand on this area.

I hope that gives you a start.

* small is defined by passing 2 out of 3 tests based on turnover, gross assets and number of employees but this probably does not matter in this case.

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