The Local Authority Pension Fund Forum (LAPFF) have issued a press release stating that they have sent a letter to the Chairmen of all FTSE-350 companies. The letters sent warn the Chairmen that they might be breaching UK Company Law by publishing accounts based on guidance from the Financial Report Council (FRC).
This is a long running argument that arose during the financial crisis in 2008 when it was alleged that one of the problems was that the accounts of financial institutions in particular (e.g. banks), did not provide a “true and fair view” of the financial position of the company as required by law. The LAPFF have even obtained a written opinion from eminent QC George Bompas which supports their stance.
Although this might seem a somewhat academic argument to many, the LAPFF have gone so far as to suggest that companies should disregard guidance and statements made by the FRC.
One of the key aspects of the argument is whether the company has sufficient distributable reserves to enable it to pay dividends – which at present is not necessarily apparent from the published financial figures issued by the company. This means that investors cannot see the real financial position. It is also suggested that banks have often concealed losses on loans because of the application of the current defective accounting standards which have masked insolvency and caused false profits to be reported.
So it’s not such an academic issue as might appear at first glance. More information is available from the LAPFF.