Expectations of the new code

Whilst signing up to the code is voluntary, new secondary legislation has introduced mandatory payment reporting, requiring all large businesses to include payment practices in their annual reports, putting responsibility on these larger companies to monitor and disclose how they treat suppliers.

A “large company” will be any company that does not fulfil the criteria of either a micro-entity or a small or medium-sized company under the Companies Act 2006. We are awaiting further clarification on what that means for smaller subsidiaries that are part of larger groups.

Consequences of not adhering to the code

As we understand it, the obligation is one of monitoring and reporting rather than meeting a particular standard. Directors at non-compliant companies who fail to report their payment practices could face criminal prosecution, including potentially unlimited fines and criminal records. It is not yet clear whether there will be a grace period prior to enforcement.

When will the code come into force?

The government has said that details of the application process and supporting guidance for companies wishing to apply will be published this year, but as of yet these have not been published and the launch date has not been confirmed, but is believed to be imminent. All existing signatories, and other companies interested in the new code, will be contacted with information on the launch date.

Client Alert 2024-232