Joint ACT / ABI / IoD Letter to DTI re Directors Protection From Liability

The Operating and Financial Review

The requirement for listed companies to prepare an Operating and Financial Review (OFR) as been going through an uncertain period. With effect from years starting 1 April 2005 the OFR became mandatory for listed companies by virtue of statutory instrument SI 2005/1011 which amended the Companies Act 1985. Then in November 2005 the Chancellor announced the intention to remove this obligation, which was made effective in January 2006 by statutory instrument SI 2005/3442.

However the debate over the OFR has continued and this has provided an opportunity to reconsider the circumstances around the OFR, be it eventually voluntary or mandatory. In particular the ACT believes that directors should not be penalised for statements made in good faith and which are not reckless.

Accordingly the ACT has joined with the Association of British Insurers and the Institute of Directors plus other organisations in writing to the DTI seeking clarification on the question of potential liability.

• Directors are concerned about the risks of statements - partly because of how advice is given to them by their legal advisors, even though HM government variously takes the view that they should not be concerned
• Accordingly we need something which would help change their perception
• This is not intended to make a change in the standards expected in corporate reporting - after all if someone wanted to show they were not reckless they may want to show appropriate enquiry (and there is guidance on that in Turnbull and in the ICAEW guidance on forward looking statements) and all the usual FSA enforced market regulation applies for listed companies still

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