New Draft Bill – modification of the statutory audit requirement and other amendments in the accounting and the company law legislation

On November 16, 2005, the Minister of Commerce and Economy submitted a draft bill No. 50 comprising inter alia the much discussed relaxation of the statutory audit requirement for the annual accounts which hitherto applied for all limited liability companies (A/S and ApS) regardless of size.

If Parliament passes the draft bill, the statutory audit requirement will be softened, as small ApS and A/S may opt out of having their annual accounts audited.

An ApS or A/S is “small”, if it classifies under Accounting Class B (no state-owned or listed companies) and in 2 consequent financial years at the balance sheet date does not exceed 2 of the following thresholds:

Balance of MDKK 1.5
Net turn over of MDKK 3
12 full-time employees in average in the financial year

Commercial trusts are still obliged to have their annual accounts audited regardless of size, and holding companies having substantial control over the affiliates do not fall under the statutory audit exemption rule.

According to the draft bill, the relaxation of the statutory audit requirement and the ancillary legislative amendments become applicable effective as for financial years beginning on January 1, 2006, or later. Consequently, small ApS and A/S remain under the audit requirements with respect to the annual accounts for 2005.

For existing ApS and A/S, which are or expect to remain small, focus should be kept on the fact that the general meeting already in 2005 will have to pass a resolution that the annual accounts for 2006 shall not be audited. You may opt-out for the future only. The audited annual accounts for 2005 must comprise information as to whether such resolution is passed.

New ApS and A/S may after January 1, 1006, be formed with an “opting out of the audit requirement” to begin with and for as long as the ApS or A/S is small. If the thresholds are exceeded after the first financial year, the annual account for the 2nd financial year must be audited.

Along with the draft bill No. 50, a draft bill No. 51 was submitted to Parliament. This draft bill contains – apart from a series of amendments in the corporate legislation due to relaxation of the statutory audit requirement – further steps aiming at modernising and liberalisation of the corporate legislation.

A number of mandatory rules in the Act on Companies (A/S), requiring various opinions and reports by the auditor in connection with capital increase and reductions become voluntary; i.e. by unanimous resolution by the shareholder(s) it may be chosen not to have these reports, opinions prepared.

An ApS or A/S, which is exempted from the statutory audit requirement, may be formed by asset contribution in form of an existing enterprise, and to the valuation report an audited opening balance sheet does not need to be prepared. As hitherto, a valuation report needs to be prepared by independent appraiser (e.g. a registered or state-authorised public account).

An ApS or A/S, which is exempted from the statutory audit requirement, may pay interim dividends without even a review by the auditor of the interim balance sheet, which must be prepared. Other amendments with respect to merger and de-merger are also foreseen.

The rule applicable for ApS that upon loss of 2/5 of the registered share capital the capital should either be re-established or the ApS winded up, will be amended to correspond to the less rigid rule applying for A/S.

The new rules in the company acts will enter into force effective as of April 1, 2006.