Re A Company (No 007466 of 2003); Company Number 1389920 v Registrar of Companies
|England & Wales
|MR PETER LEAVER QC,Mr Peter Leaver QC
|19 January 2004
| EWHC 35 (Ch), EWHC 60 (Ch)
|Case No: 7466 of 2003
|19 January 2004
 EWHC 60 (Ch)
IN THE HIGH COURT OF JUSTICE
IN THE MATTER OF COMPANY REGISTRATION NO. 1389920
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Peter Leaver QC (sitting as a Deputy Judge of the High Court)
Case No: 7466 of 2003
Miss Rosalind Nicholson (instructed by Reed Smith) for the Claimant
Mr Jonathan Crow (instructed by The Treasury Solicitor) for the Defendant
Hearing date: 17th December 2003
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
1. There is before the Court an application in relation to the accounts of a company to which I shall refer in this judgment as “Company A”. The application has been listed, pursuant to the order of Mr Registrar Derrett made on the 25th November 2003, as “In the Matter of Company Number 1389920”.
2. The application before the Court is principally for an order permitting Company A to file revised accounts in substitution for the accounts and reports for the year to the 30th September 2002, which were filed with the Registrar of Companies (“the Registrar”) on the 30th July 2003.
3. The facts which give rise to this application can be briefly stated. Company A is one of two defendants in proceedings which are now being carried on in the Technology and Construction Court (“the TCC Proceedings”), having been transferred to that Court from the Commercial Court, by order of Colman J. made on the 18th July 2003.
4. In the TCC Proceedings the claimants are claiming, damages for breach of a contract to supply gas meters. The claimants contend that the gas meters supplied by the defendants were defective, and claim damages in the region of £25 million. The defendants deny that they are or were in breach of contract, and make a Part 20 claim against the claimants for breach of an implied term of the contract and/or for breach of duty.
5. The defence and Part 20 claim were served on the claimants on the 28th March 2003. On the 27th May 2003 the claimants made a Part 36 offer to settle the claim, and on the 21st July 2003, shortly after Colman J.'s order, the defendants made their own Part 36 offer, and made a payment into court.
6. Company A's accounts were due to be filed by the 31st July 2003. They were duly filed on that day. One of the notes to the accounts which were filed contained two sentences (“the offending sentences”) which referred to Company A's contingent liability in the proceedings, and to the Part 36 offer which had been made by the claimants to settle the claim. The evidence is that the note was included after discussion between Company A's auditors and directors, but without taking any legal advice.
7. On the 18th November 2003 the claimants’ solicitors wrote to Company A's solicitors saying that they had undertaken company searches of both Company A and the other defendant in the TCC Proceedings, and had seen the note in Company A's accounts. In effect, the claimants’ solicitors demanded that revised accounts should be filed from which the offending sentences had been removed and in which no reference was made to the Part 36 offer.
8. Company A's solicitors requested permission from the Registrar to file revised accounts omitting the offending sentences referring to the Part 36 offer. They were told that it would be necessary for them to make an application to the Court for permission. It is common ground that if the Registrar had refused permission, it would have been necessary for Company A to apply for permission to review judicially that refusal. However, no point was taken on behalf of the Registrar about the form of the present proceedings.
9. As I have stated above, the principal issue on this application is whether Company A should be given permission to file revised accounts omitting the offending sentences In fact, there are five different forms of relief sought on the Claim Form, but it is common ground that the whole application stands or falls on the decision as to whether permission should be granted to file revised accounts, from which the offending sentences have been deleted it is, therefore, to that issue that I now turn.
10. The right to prepare revised accounts (or a revised directors’ report) is provided by section 245 of the Companies Act 1985(“the Act”). The right, arises “if it appears to the directors of the company that any annual accounts of the company, or any directors’ report did not comply with the requirements” of the Act.
11. Section 245(2) stipulates that where copies of the previous accounts or report have been laid before the company in general meeting or delivered to the Registrar, the revisions shall be confined to the correction of those respects in which the previous accounts or report did not comply with the requirements of the Act, and the making of any necessary consequential alterations.
12. Section 245(3) gives the Secretary of State the power to make provision by regulations as to the application of the provisions of the Act in relation to revised annual accounts or a revised directors’ report, and section 245 (4) provides, inter alia, that the regulations may make different provision according to whether the previous accounts or report are replaced or are supplemented by a document indicating the corrections to be made, and may require the directors to take such steps as may be specified in the regulations where the previous accounts or report have been sent out to members and others, laid before the company in general meeting or delivered to the Registrar.
13. The right provided by section 245 of the Act is referred to as “voluntary revision”. That right is to be contrasted with the right of the Secretary of State, or of a person authorised by the Secretary of State, to make an application to the Court for a declaration that the annual accounts of the company do not comply with the requirements of the Act and for an order requiring the directors of the company to prepare revised accounts: see sections 245A-C.
14. In broad terms, the relevant requirements of the Act in relation to accounts are that the directors must prepare for each financial year of the company (a) a balance sheet as at the last day of the year, which gives a true and fair view of the state of affairs of the company as at the end of the financial year, and (b) a profit and loss account, which gives a true and fair view of the profit or loss of the company for the financial year: see section 226. In addition, the directors must prepare, for each financial year, a report containing a fair review of the development of the business of the company and subsidiary undertakings during the financial year: see section 234.
15. Thus, the right to make a voluntary revision, or for the Secretary of State to seek an order requiring revision, arises where it appears to the directors, or to the Secretary of State, as the case may be, that the filed accounts or directors’ report did not comply with the requirements of the Act, in that they did not give a true and fair view of the state of affairs of the company at the end of its financial year, or of its profit and loss for the financial year.
THE APPLICATION TO REVISE THE ACCOUNTS
16. It was common ground at the hearing that the accounts that Company A had filed did give a true and fair view both of the state of affairs of Company A at the end of its financial year and of its profit and loss for that year. Miss Rosalind Nicholson, who appeared on behalf of Company A, made it clear, both in her Skeleton Argument and in her oral submissions, that, although the application was for permission to make a voluntary revision, it was not made pursuant to section 245, but was made “under the Court's inherent jurisdiction”. That inherent jurisdiction was said to be a jurisdiction to maintain the integrity of the Court's own proceedings, and to extend to safeguarding the confidentiality afforded to “without prejudice” offers and negotiations.
17. Mr Jonathan Crow, who appeared on behalf of the Registrar, submitted that there was no inherent jurisdiction. Limited liability companies are creatures of statute, and their existence and conduct is regulated by statute. Likewise, the Registrar is a creation of statute, whose functions and powers are laid down in and regulated by statute. Accordingly, there is no room for an inherent jurisdiction to regulate either a company's or the Registrar's conduct. The Court's inherent jurisdiction is to control its own process, that is, to prevent its process being abused.
18. Before considering the submissions as to the existence or otherwise of an inherent jurisdiction to permit the revision of accounts, it is necessary to say a few words about Part 36 offers, and what is commonly referred to as the “without prejudice” rule.
CPR PART 36 AND THE “WITHOUT PREJUDICE” RULE
19. CPR Part 36 is concerned with offers to settle, and payments into court made in accordance with the provisions of Part 36. It applies both to claims and counterclaims. CPR Part 36.19(1) provides that a Part 36 offer will be treated as “without prejudice except as to costs”, and CPR Part 36.19(2) provides that the fact that a Part 36 payment has been made shall not be communicated to the trial judge until all questions of liability and the amount of money to be awarded have been decided.
20. The mischief at which CPR Part 36 is directed is to prevent a Part 36 offer or payment becoming known to the trial judge before questions of liability and damages have been decided. But the prohibition is not absolute....
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