Corporate Act Aware 3
ACT AWARE 3
Welcome to the third Act Aware from FSI. In Act Aware 2 we book-marked 1 October 2007 as an important implementation date for the “new” Companies Act 2006 (the Act). That day is upon us and a significant tranche of the Act replaces the old law this Autumn. No more drip-feeding.
If you haven’t before, then it is essential for you to sit up and take note of the new legislation and the implications for both you and your business.
This edition of Act Aware focuses on the key provisions of the Act where there is a marked divergence from the old law and which we believe should be prioritised by our clients.
DIRECTORS’ DUTIES CODIFIED
Much has been made of the codification and extension in the Act of the common law and equitable duties of directors. The Act provides a non-exhaustive list of seven duties which are reproduced in full overleaf (see s.170-177). All but two (s.175 and 176 - effective 1 October 2008) are now in force.
Unsurprisingly the precise wording of these duties has been the subject of much debate. Of particular concern to directors is that a situation could arise where two or more duties may conflict. Whatever your stance, if you are a company director (or a concerned shareholder) now is the time to re-engage with the extent of your duties and review with care the precise wording of the Act. The codified duties should act as a useful prompt for you and your company to undertake an internal health-check of its board and practices.
NEW DERIVATIVE CLAIMS REGIME
The old common law derivative action has been replaced by a new procedure that is to be managed by the judiciary (partly to eliminate frivolous claims), extends the boundary of potential claimants beyond registered members and widens the scope of the law by permitting actions in both fraud and negligence against a director. See the FSI Briefing Note on Derivative Actions for a detailed review of these changes and their implications.
COMPANY DIRECTORS
Private and public companies must have at least one and two director(s) respectively and all companies must now have at least one director who is a natural person (i.e. not a corporate body). There are transitional provisions to give companies time to comply with this latter requirement.
New business review reporting provisions for directors are being implemented for all but the smallest private companies, tying in with the duty to show that they are acting to promote the success of the company. Directors will only be liable to the company (and not shareholders or potential investors) for any untrue or misleading statement or omission (but note the new derivative actions regime above).
RESOLUTIONS AND MEETINGS
One of the primary objectives of the Act was the simplification of regulations, particularly for private companies, and as of 1 October 2007 much ‘red tape’ has been cut.
Private companies will no longer need to hold an AGM. Written resolutions can be passed with the requisite number of votes for an ordinary or special resolution respectively as opposed to unanimity.
POLITICAL DONATIONS
The position as to political donations or expenditure has been clarified in the Act, whereby aggregate donations to a political party by a group of companies must not exceed £5,000 without shareholder approval. Note that any assistance given to trade unions may be treated differently.
FRAUDULENT TRADING
Please note that the punishments have increased from 6 to 12 months on summary conviction, and from 7 to 10 years on indictment.
ARTICLES OF ASSOCIATION
There is no requirement to amend a company’s articles as a result of the recent changes to company law, however, note that for new companies an updated set of interim Table A articles are available for use. Final model Table A articles for both private and public companies have yet to be published but will become the default articles for companies registered on or after 1 October 2008.