Regulation 4 Amendment to section 414CB (contents of the non-financial and sustainability information statement)

After section 414CB of the Companies Act 2006 insert—

“Company with a high level of employees and turnover

414CC

(1)

For the purposes of this Act, a company is a “company with a high level of employees and turnover” in relation to a financial year if—

(a)

where the company was not a parent company—

(i)

the company had 750 or more employees; and

(ii)

the company’s turnover equals or exceeds £750 million;

(b)

where the company was a parent company—

(i)

the aggregate number of employees for the group headed by that company equalled or exceeded 750 employees; and

(ii)

in that year the group headed by the company had net aggregate turnover of £750 million or more.

(2)

In applying sub-sections (1)(a)(ii) and (1)(b)(ii), a company must also include any of the following income which it, or in the case of a parent company, the group headed by the company, has received from the activities of a banking company or of an insurance company during the financial year in question—

(a)

in the case of a banking company, net income arising from interest, trading, fees and commission; and

(b)

in the case of an insurance company, revenue or earned premiums net of reinsurance, depending upon the accounting framework which the company or, in the case of a parent company, the group headed by the company, has used in reporting the income from those activities during the financial year in question.

(3)

For a company’s financial year that is less than twelve months the figures for turnover given by subsection (1), or the sum which is added to or substituted for turnover by subsection (2), must be proportionately adjusted.

(4)

For the purposes of subsection (1)(b)(ii)—

(a)

aggregate turnover, or the sum added to turnover by subsection (2), is ascertained by aggregating the relevant figures determined for each member of the group;

(b)

“net”, in relation to aggregate turnover, or the sum added to turnover by subsection (2), is to be interpreted in accordance with section 383(6)^f1.

(5)

Section 383(7) applies for the purposes of subsection (1)(b) of this section, and for the purposes of the sum added to or substituted for turnover by subsection (2), as it applies for the purposes of section 383.

(6)

For the purposes of this section—

(a)

the number of employees means the average number of persons employed by the company in the financial year, determined by—

(i)

finding for each month in the financial year the number of persons employed under contracts of service by the company in that month;

(ii)

adding together the monthly totals; and

(iii)

dividing by the number of months in the financial year; and

(b)

the aggregate number of employees for a group is ascertained by aggregating the figure determined in accordance with this subsection for each member of the group.

Resilience statement

414CD

(1)

If, in relation to a financial year, a company is a company with a high level of employees and turnover, the strategic report for that financial year must contain a resilience statement in accordance with this section.

(2)

If the company’s strategic report is a group strategic report, the resilience statement must be a consolidated statement relating to the members of the group.

(3)

The resilience statement must summarise the company’s strategic approach to managing risk and building or maintaining resilience over the short, medium and long-term.

(4)

The resilience statement must define the short and medium term for the purposes of the statement, such that—

(a)

the short-term must equal the period covered by the summary of the going concern statement (see subsection (7));

(b)

the definition of medium-term must be accompanied by an explanation of how the chosen period aligns with the company’s strategy, business planning and investment cycle.

(5)

In particular, the statement must set out—

(a)

how principal risks and resilience are considered in the company’s business planning and investment cycle;

(b)

the company’s internal governance processes for managing its principal risks and for building or maintaining resilience, including the role of directors;

(c)

the principal risks that could threaten the business model, operations, future performance, solvency or liquidity of the company over the short-term or medium-term, including each of the following matters to the extent that the directors consider that they either constitute a principal risk in themselves or are relevant to the company’s management of principal risks—

(i)

the company’s financial liabilities or expected refinancing needs;

(ii)

the company’s operational and financial preparedness for a significant and prolonged disruption to its normal business trading;

(iii)

the company’s digital security risks, including cyber security threats and the risk of significant breaches of its data protection obligations;

(iv)

areas of business dependency or concentration, with regard to the company’s suppliers, customers, products, contracts, services or markets; and

(v)

the impact of climate-related risks and and sustainability-related risks, if any, on the company’s business model, to the extent that this is not already disclosed in the non-financial and sustainability information statement or elsewhere in the strategic report.

(6)

In respect of the content of the statement required by subsection (5)(c), the statement must include—

(a)

the likelihood of the risk occurring and its impact on the company’s operations or financial health if it were to occur;

(b)

the time period over which the risk is expected to continue or to occur, if known;

(c)

what mitigating action, if any, the company has put, or plans to put, in place to manage the risk; and

(d)

any significant changes since the previous resilience statement.

(7)

The resilience statement must also contain a summary of the matters relevant to the going concern status of the company which—

(a)

identifies and explains the time period covered by the summary of the going concern status of the company, which must, in each case, end no sooner than twelve months after the date on which the company’s accounts for the relevant financial year are approved by the board of directors under section 414;

(b)

summarises the reasons for the directors’ decision whether or not to adopt the going concern basis of accounting in the relevant period;

(c)

discloses any material uncertainties that may cast significant doubt on the company’s ability to continue to operate as a going concern;

(d)

where necessary to help users of the summary to understand the current position and future prospects of the business, disclose and explain any significant judgments made by the directors in connection with the company continuing to operate as a going concern, together with any mitigating action taken by the directors to enable this decision to be taken.

(8)

The resilience statement must also provide an assessment by the directors of the company’s prospects and of the likelihood that the company will continue in operation and meet its liabilities as they fall due over the medium-term, which—

(a)

takes account of the principal risks which the directors have set out in accordance with subsection (5)(c);

(b)

demonstrates how the directors’ assessment has had regard to the company’s expected financing facilities and financing needs, and any related covenants, over the medium term;

(c)

confirms that at least one reverse stress test has been carried out, in which the directors have—

(i)

identified a combination of adverse circumstances which could cause the business plan of the company to become unviable;

(ii)

assessed the likelihood of those circumstances occurring; and

(iii)

identified mitigating action which might be taken, either to avoid the occurrence of those circumstances, or to reduce their impact; and

(d)

summarises both any such reverse stress test and any mitigation taken as a result.

(9)

The resilience statement must also—

(a)

contain a summary assessment, including estimated timings, of any long-term trends and factors that are likely to continue or occur beyond the medium-term assessment period, and which the directors believe could represent a significant threat in future to the company’s business model or operations; and

(b)

describe any plans that the company has put in place and any adaptations that the company is proposing to make to its business model or operations to manage any long-term challenges which it has identified under paragraph (a).

(10)

Nothing in this section requires the disclosure of information—

(a)

about impending developments or matters in the course of negotiation; nor

(b)

under subsection (8)(c) (to the extent that it describes the elements of the stress test) and (d),

if the disclosure would, in the opinion of the directors, be seriously prejudicial to the interests of the company.

(11)

The directors of the company must retain a record of any reverse stress test as described in subsection (8)(c) and (d) for at least six years from the date on which the reverse stress test is carried out.

414CE.

(1)

Section 414CD does not apply to a company if the company is—

(a)

a subsidiary company, at the end of the financial year in question; and

(b)

included in a group strategic report which is produced by the company’s parent company and satisfies the requirements of subsection (2).

(2)

A report falls within this subsection if it—

(a)

relates to undertakings that include the company and its subsidiary companies,

(b)

is prepared for a financial year of the parent company that ends at the same time as, or before the end of, the company’s financial year, and

(c)

includes a group resilience statement in respect of all the companies which are included in the consolidation.

(3)

Information set out in the resilience statement in accordance with section 414CD may be relied upon to satisfy other requirements imposed by or under this Act in relation to a strategic report or a directors’ report.

(4)

In particular, the requirement imposed by section 414C(2)(b) (description of the principal risks and uncertainties facing the company) may be satisfied by referring to material included in a resilience statement.”.