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The Local Authority Pension Fund Forum (LAPFF) has made a fresh call for FTSE 350 boards to disregard regulatory advice over the application of “defective” accounting standards when deciding the level of dividend.

The move by the LAPFF, whose 71 members have £175bn (€205bn) in assets, is the latest development in a long-running row over the interpretation of the Companies Act 2006 in relation to dividend payment based on accounts prepared under International Financial Reporting Standards (IFRS).

The LAPFF argues that documents released by the former Department for Business, Innovation and Skills (BIS) under the Freedom of Information Act cast further doubt on advice offered by the Financial Reporting Council (FRC), the regulator with oversight of accounting matters.

The letter to FTSE 350 boards, signed by LAPFF chairman Cllr Keiran Quinn, calls on the chairs of UK listed companies to disregard the advice offered by the FRC, and consult with company lawyers about the concerns raised.

“We would also encourage you to have a boardroom discussion,” Quinn, also chair of the Greater Manchester Pension Fund, adds.

Having taken legal advice on two occasions from George Bompas QC, LAPFF argues that accounts prepared under what it calls “defective” International Financial Reporting Standards (IFRS), mean companies risk paying dividends out of illusory IFRS profits. It previously warned that FRC guidance was “contrary to the requirements of the law”.

The FRC has consistently argued that this is not the case and that companies can safely rely on the figures reported under IFRS, subject to applying the true and fair view override in exceptional circumstances.

Sparking the latest furore is the release of 53 pages of partially redacted correspondence between BIS and the FRC.

In those exchanges, BIS officials are shown to have restrained as-yet unidentified FRC officials from publicly stating that Bompas and LAPFF were wrong.

One unnamed BIS official wrote: “I am concerned by the wording in the first paragraph. We have never said that the views are ‘incorrect and may be disregarded’.

“What we have said is that the Companies Act 2006 does not require the disclosure of a separate figure for distributable profits. Ultimately, whether the views of the LAPFF are incorrect would be a matter for the courts.”

In a further warning, BIS officials wrote on 3 December last year: “I really think this needs to be kept factual.”

The email continues: “If your lawyer was [sic] comfortable, you might include the line: ‘The FRC does not agree with the LAPFF’s interpretation of company law on this matter’ but I couldn’t agree to you including a reference to the [g]overnment.”

The author then goes on to explain that BIS staff “haven’t had time to speak with our lawyer on the point (and may not be able to do so quickly as he is not in the office today).”

The BIS intervention came in response to a proposed reply to a second Bompas legal Opinion obtained by the LAPFF last year.

An FRC representative wrote: “The FRC and the government have confirmed that the views of the LAPFF on this matter of company law are incorrect and may be disregarded.”

In response to the disclosures, an FRC spokeswoman told IPE: “The FRC discusses policy issues on a regular basis with central government as this [freedom of information] response shows.

“Our position on this issue is clear: the Companies Act 2006 does not require the separate disclosure of a figure for distributable profits.”

Crucially, LAPFF writes that neither it nor its legal experts have disputed this point. The FRC has refused to clarify why it has made a reference to a separate disclosure.

The FRC’s statement continues: “Ultimately interpretation of the Act is a matter for the courts.

“The FRC stands by what it has previously said on this matter. It was aware that the LAPFF had written to company Chairmen in late 2015.

“Their letter dealt with a very narrow point of company law in terms which we cannot support and which raises uncertainty unnecessarily.

“The LAPFF’s new letter is drawing on emails regarding a draft statement. The final version of the statement was agreed with BIS.”

The FRC has declined to identify the individuals involved in the released correspondence.

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