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A consultative document issued by the High Level Group of Company Law Experts

Comments from the Association of Chartered Certified Accountants
July 2002

The Association of Chartered Certified Accountants (ACCA) has reviewed the consultation document of the above title and wishes to make the following comments.

As a general point, we believe that progress on this matter should be careful not to duplicate matters which would be more appropriately dealt with within the framework of the project currently being undertaken by the Commission-appointed High Level Group of Company Law Experts ('the High Level Group'). Reforms which are relevant to all companies, not just listed companies, should be treated as general company law reform issues.

PERIODIC REPORTING

(i) Annual financial reporting

We welcome the new proposal to extend the publication deadline for annual financial reports from 60 days to three months. Given the steadily increasing amount of information that companies are being required to disclose, three months would be a more reasonable time-scale. This figure would also be consistent with current US requirements.

We do however see a problem with the inter-relationship of the deadlines for interim and annual reports. The standard deadline for the preparation of interim reports is to be two months from the end of the period concerned. A company would however be exempt from the requirement to prepare an interim report in the fourth quarter if its annual report were prepared within the same two-month deadline. If the annual report were prepared in accordance with the three-month deadline, it would need to prepare a fourth-quarter report. We consider that it would be unreasonable to expect companies to prepare their annual reports within two months of the year end, on pain of losing the exemption from the need to prepare the final quarterly report. We believe that the exemption should apply to all companies provided they meet the three month deadline.

(ii) Quarterly financial reporting

ACCA continues to have reservations about the retained proposal to require listed companies to report on a quarterly basis. We remain of the view that a properly-policed requirement to make ad hoc disclosures of price-sensitive information, as is likely to appear in the forthcoming Directive on Market Abuse, would be sufficient to keep markets informed. We also consider there to be a danger that a blanket requirement for companies to report on a quarterly basis would serve to encourage undesirable short-termist attitudes among companies and analysts. We believe that over-concentration on short-term results is not in the wider or long-term interests of shareholders and other stakeholders. The document proposes to bring in abbreviated disclosure rules for listed companies which are SMEs, defined by reference to the accounting-based thresholds contained in article 27 of the Fourth Company Law Directive (turnover of <€25 million and balance sheet total of <€12.5m). We would caution against such a move. As we understand it, the purpose of interim reporting is to provide the markets with detailed information about listed companies' activities on as regular a basis as is practicable; these special provisions are needed because listed companies are authorised to raise funds directly from capital markets. The nature of listed companies does not, in our view, lend itself to allowing for reductions in discloseable information by reference to a company's accounting size. In fact, it is arguably more important that younger listed companies be required to disclose information since they have little in the way of a business track record and, hence, potential investors have less information to take into account when making investment decisions. The vulnerability of investors would be increased if abbreviated disclosure rules were introduced. Our view, therefore, is that, if quarterly reporting is introduced, it should be applied to all listed companies regardless of 'size'.

ON-GOING INFORMATION

(i) Rights of shareholders

It should be a basic feature of company law that shareholders have the right to vote in person or in absentia. This issue should, however, be addressed not in a future measure affecting listed companies alone, but as part of the project being undertaken by the High Level Group with respect to the modernisation of company law generally.

On the issue of electronic voting, we believe that listed companies should be encouraged to make more use of information technology in all their communications with regulators and stakeholders. Electronic voting should be seen as part of this wider involvement with information technology. Extending the means of shareholder participation would provide an additional incentive to all shareholders, particularly small shareholders and those based some distance away from the venue of a general meeting, to influence company affairs. With the predicted increase in the incidence of cross-border share ownership with the establishment of the single financial services market, allowing remote participation by shareholders would be a positive response in the context of encouraging greater shareholder involvement.

(ii) Disclosure of voting and capital structures

We are content with the first three of the four changes proposed by DG Internal Market with regard to the disclosure of information on voting and capital structures. We see shareholder agreements as being slightly different from the other matters put forward. Shareholder agreements are, as the term implies, essentially private arrangements between participating individual shareholders as to how they should exercise their ownership rights in a company. The company is not a party to a shareholder agreement. Given the private nature of the agreement, and the fact that the company has no control over it, we do not consider it would be appropriate for its full contents to be disclosed by the company.

DISSEMINATING AND FILING INFORMATION

We strongly support the commitment made in the document to making published company information easily and readily accessible across the EU. We see the achievement of this goal as the essential corollary of the single financial market. There should be a consistency of approach on this matter between the listing rules and standard company law requirements, as currently being reviewed by the High Level Group of Company Law Experts. In our view, ready access to company information, throughout the EU, should be possible in respect of all companies, listed or not.

With regard to the means of disseminating information, we support the suggestion that member states should allow companies to publish their interim reports on their web sites. Given that not all interested parties will have access to the internet, publication on a web site should be only in addition to publication in hard copy format. Whichever method is chosen, companies should be encouraged to inform stakeholders of the means by which they have chosen to publish their information.

We also welcome the proposal that stock market regulators be required to fulfil a repository function and make published company information available via the web. The US SEC already acts as a source of information on listed companies. Ideally, each regulator would provide direct links to the web sites of other EU regulators.

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