Exemption from preparing and filing accounts for qualifying subsidiaries

Dormant subsidiaries of a European Economic Area (EEA) parent can now be exempted from preparing and filing accounts with the registrar by meeting a number of stringent conditions.

The exemptions apply for financial years ending on or after 1 October 2012 and are introduced by Statutory Instrument 2012/2301.

This gives effect to the exemptions by adding new sections to Companies Act 2006. In particular, sections 394A, 394B and 394C deal with the exemption from the requirement of preparing accounts, while sections 448A, 448B and 448C deal with the exemption from filing accounts with the registrar.

The new rules apply for both companies and LLPs that, at the end of a financial year ending on or after 1 October 2012, are a subsidiary undertaking and have been dormant throughout the period, and whose parent is established under the law of an EEA state.

The conditions that have to be met to be exempt from preparing accounts and from filing accounts are identical and are:

• All members must agree to the exemption in respect of the financial year in question.
• The parent must give a statutory guarantee under section 394C and 448C of all the outstanding liabilities to which the subsidiary is subject at the end of the financial year.
• The company or LLP must be included in the consolidated accounts drawn up by the parent undertaking, which must be prepared in accordance with the Seventh Company Law Directive or International Accounting.
• Standards specifically drafted.
• The use of the exemptions by the subsidiary under Companies Act 2006 must be disclosed in the notes to the consolidated accounts drawn up by the parent.
• The following documents must be filed at Companies House by the directors or designated members of the subsidiary within the filing deadline for the subsidiary’s accounts:

- written notice of the agreement in (a)

- a statement under section 394C and 448C by the parent that it guarantees the subsidiary’s liabilities

- a copy of the consolidated report and accounts referred to in (c) and the auditor’s report on those accounts.

• The company is not quoted within s385(2) of the Companies Act (the Act) at any time in the year.
• It is not an authorised insurance company, a banking company or LLP, an e-Money issuer, a MiFID investment firm or a UCITS management company, or carries on insurance market activity.
• It is not a trade union or an employer’s association. 

Dormant companies and LLPs that do not qualify as small under Companies Act 2006 - perhaps because they are a public company or are part of an ineligible group - will still be able to avail from the exemptions if the conditions are met.

The effect of the statement of guarantee of the subsidiary’s liabilities filed at Companies House is that of binding the parent undertaking in respect of all the liabilities that are outstanding at the end of the financial year, until they have been satisfied in full.

Any person who is a creditor of the subsidiary at the end of the financial year will be able to enforce the guarantee against the parent undertaking.

A creditor who has obtained a judgment against the parent guarantor in the courts of England and Wales, Scotland or Northern Ireland will generally be able to enforce that judgement in another EEA jurisdiction without issuing separate proceedings there.

That would happen by virtue of either the Brussels Regulation (Council Regulation (EC) No 44/2001) or the 2007 Lugano Convention, both of which deal with the jurisdiction and the recognition and enforcement of judgements in civil and commercial matters.

The written notice of shareholders’ agreement to the exemption, and the parent’s statement of guarantee of liabilities, will need to be in English, with exemptions for certain Welsh companies.

Additionally if the copy of the parent company’s audited consolidated accounts is delivered in a foreign language, it will need to be accompanied by a certified translation into English to be filed at Companies House.

Obtaining a certified translation of a set of group accounts may be an expensive exercise that may reduce the attractiveness of dispensing with the preparation and filing of accounts for a dormant subsidiary.

In the circumstances in which a UK dormant subsidiary is controlled by an EEA parent via an intermediary parent entity that is not established in an EEA state, the exemptions will still be applicable.

In such a case the EEA parent will give the required guarantee and the audited group accounts to be filed at Companies House will be those of the EEA undertaking.  

For more information visit the 'Related links' section on this page.

Further information is available in the two ACCA Guides To (available in the 'Related documents' section on this page), which can be shared with staff and/or clients.