Commentary Part 16: Audit Chapter 6: Auditors’ Liability Section 536: Authorisation of agreement by members of the company
824.This section specifies the way in which members of a company are to give their approval to a liability limitation agreement, without which approval the agreement will not be effective. The members of a private company can pass a resolution waiving the need for approval. The members in a private or a public company can pass a resolution before an agreement is signed approving its principal terms, or can approve the agreement after it is signed. The resolution may be an ordinary resolution, unless a higher threshold is set in the company’s articles.
825.Subsection (5) specifies what the principal terms of a liability limitation agreement are for this purpose, namely the terms that specify, or enable one to determine, (i) the sorts of faults by the auditor that are covered, (ii) the financial year in relation to which those faults are covered, and (iii) the limit on the auditor’s liability.
826.Subsection (6) provides that members, by passing an ordinary resolution, can withdraw their approval of a liability limitation agreement at any time before the agreement is entered into. If the company has already entered into the agreement, approval can be withdrawn, by ordinary resolution, only before the start of the financial year to which the agreement relates.