Companies Act 2006, section 386

Duty to keep accounting records

Part 15 Accounts and reports

(1)Every company must keep adequate accounting records.

(2)Adequate accounting records means records that are sufficient—

(a)to show and explain the company's transactions,

(b)to disclose with reasonable accuracy, at any time, the financial position of the company at that time, and

(c)F314to enable the directors to ensure that any accounts required to be prepared comply with the requirements of this Act ....

(3)Accounting records must, in particular, contain—

(a)entries from day to day of all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place, and

(b)a record of the assets and liabilities of the company.

(4)If the company's business involves dealing in goods, the accounting records must contain—

(a)statements of stock held by the company at the end of each financial year of the company,

(b)all statements of stocktakings from which any statement of stock as is mentioned in paragraph (a) has been or is to be prepared, and

(c)except in the case of goods sold by way of ordinary retail trade, statements of all goods sold and purchased, showing the goods and the buyers and sellers in sufficient detail to enable all these to be identified.

(5)F315A parent company that has a subsidiary undertaking in relation to which the above requirements do not apply must take reasonable steps to secure that the undertaking keeps such accounting records as to enable the directors of the parent company to ensure that any accounts required to be prepared under this Part comply with the requirements of this Act ....

Read section 386 in the full Act → Definitions (5) Cases (27)

Definitions used in section 386

company

“company” means a company formed and registered under this Act, that is—

(a)

a company so formed and registered after the commencement of this Part, or

(b)

a company that immediately before the commencement of this Part—

(i)

was formed and registered under the Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)), or

(ii)

was an existing company for the purposes of that Act or that Order,

(which is to be treated on commencement as if formed and registered under this Act).

Defined in s.1(1) · see it in the full Act

(4) In this section and that Schedule “company” includes any body corporate.

Defined in s.1159(4) · see it in the full Act
director

In the Companies Acts “director” includes any person occupying the position of director, by whatever name called.

Defined in s.250 · see it in the full Act
parent company

“parent company” means a company that is a parent undertaking (see section 1162 and Schedule 7);

Defined in s.1173(1) · see it in the full Act
subsidiary undertaking

(1) This section (together with Schedule 7) defines “parent undertaking” and “subsidiary undertaking” for the purposes of the Companies Acts.

Defined in s.1162(1) · see it in the full Act
undertaking

(1) In the Companies Acts“undertaking” means—

(a)a body corporate or partnership, or

(b)an unincorporated association carrying on a trade or business, with or without a view to profit.

Defined in s.1161(1) · see it in the full Act

Cases considering section 386 (27)

The Official Receiver & Anor v Azam Iqbal Haq, (Re Wifime Limited (in liquidation))

[2025] EWHC 485 (Ch) · 7 March 2025

Applies the obligation to keep accounting records to the director’s failure to document company payments and cash withdrawals. The failure supported findings of breach of duty and liability to repay the unexplained sums (see paras [14]; [82]; [87]).

Maxima Creditor Resolutions Limited v John Thomas Fealy & Anor

[2024] EWHC 2694 (Ch) · 1 November 2024

The court applied the accounting-record duty to determine whether transactions were significant accounting transactions. Liabilities for labour, materials and equipment were transactions required to be recorded and established non-dormancy throughout the qualifying period. (see paras [12]; [70]-[75])

Dominik Thiel-Czerwinke & Anor (Joint Liquidators of Courtside Recycling Limited) v Nicholas James Crabb

[2024] EWHC 337 (Ch) · 21 February 2024

The court treated the obligation to compile and preserve company records under section 386 as relevant to misfeasance and fiduciary duties. Deliberate destruction of trading records reinforced the conclusion that the respondent could not rely on missing evidence to explain the company’s cash. (see paras [18]-[21]; [90]-[102])

7 more judgments, and what each says about section 386, are in the case-law panel in the full Act.

Amendments and notes

5 notes from legislation.gov.uk

Amendments

  1. F314Words in s. 386(2)(c) omitted (31.12.2020 with effect in relation to financial years beginning on or after IP completion day) by virtue of The International Accounting Standards and European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/685), reg. 1(2)(3), Sch. 1 para. 3 (with reg. 1(4)-(8), Sch. 1 para. 64) (as amended by S.I. 2020/335, regs. 1, 3, 4 and S.I. 2020/523, regs. 1(2), 22, 25(b)); 2020 c. 1, Sch. 5 para. 1(1)
  2. F315Words in s. 386(5) omitted (31.12.2020 with effect in relation to financial years beginning on or after IP completion day) by virtue of The International Accounting Standards and European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/685), reg. 1(2)(3), Sch. 1 para. 3 (with reg. 1(4)-(8), Sch. 1 para. 64) (as amended by S.I. 2020/335, regs. 1, 3, 4 and S.I. 2020/523, regs. 1(2), 22, 25(b)); 2020 c. 1, Sch. 5 para. 1(1)

Modifications

  1. C543Ss. 380-414 applied (with modifications) (1.10.2009) by S.I. 2009/2436, regs. 3-5, Sch 1 para. 10 (with reg. 7, Sch. 2) (and the said Sch. 1 para. 10 is amended (with application in accordance with reg. 1(3) of the amending S.I.) by The Unregistered Companies (Amendment) Regulations 2013 (S.I. 2013/1972), regs. 1(2), 2(2)(a))
  2. C558Ss. 386-389 applied (with modifications) (1.10.2008) by The Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 (S.I. 2008/1911), reg. 6 (as amended (1.10.2009) by The Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009 (S.I. 2009/1804), regs. 2, 85, Sch. 3 para. 16)
  3. C559Ss. 380-416 applied (with modifications) (1.10.2009) by The Unregistered Companies Regulations 2009 (S.I. 2009/2436), regs. 3-5, Sch. 1 para. 10 (with transitional provisions and savings in regs. 7, 9, Sch. 2)