Welcome to the fourth Act Aware from FSI. Since Act Aware 3 the Department for Business Enterprise and Regulatory Reform has taken the decision to defer the full implementation of the Companies Act 2006 (the Act) by one year to 1 October 2009. The reason for the delay is well meant as it should give Companies House sufficient time to get their systems and processes in place to deal with certain of the new provisions. However, not all of the proposed 1 October 2008 implementations have been deferred and so please keep it in your diary.
6 April 2008, which was the next key date for implementation of the Act, was little affected by the deferrals and so this edition of Act Aware sets out the recent changes to company law that might affect you and your business. Private companies are the principal beneficiaries of the latest round of implementations of the Act with the simplification of company administration taking centre stage.
We have also branched out in this edition to look at other significant changes to company law that may affect you and we report below on the Corporate Manslaughter and Corporate Homicide Act 2007 (CMCHA 2007), much of which was also implemented on 6 April.
ADMINISTRATIVE RED TAPE CUT
A private company is no longer required to have a company secretary. Instead, a director (and from October 2009 another person authorised by the directors) can undertake their duties. However, if a company’s articles state that it is required to have a secretary then it must have one or amend its articles to dispense with the role. PLCs must still retain a secretary.
From now on there are three methods for a company to execute a deed: 1) by seal, 2) by two company officers or 3) by one director in the presence of a witness. The rules for signing a simple contract are unchanged and can be made either under seal or by an authorised signatory.
It is becoming less common for a company’s articles to provide for a chairman’s casting vote in a members’ meeting but now the use of such a provision in a company’s articles has been made void by the Act for new companies. However, an existing company which has such a provision in its articles can continue to operate on the same basis. Further, a company that has removed such a provision from its articles since 1 October 2007 may reinstate it should it so wish.
A new requirement has been introduced requiring companies either to register transfers of shares or debentures or to provide reasons for refusing to do so within two months of the transfer being lodged with the company. Failure to comply with this provision is an offence, and the company and every officer in default may be liable to a fine.
COMPANY ACCOUNTS: TRUE & FAIR?
The provisions of the Act relating to accounts and reports were implemented in full but please note that they
shall only apply to financial years commencing on or after 6 April 2008. Given the complexity of these provisions the changes are relatively minimal. Two new sets of regulations - one for small companies and the other for those that are large & medium sized - have been published (see www.opsi.gov.uk) that helpfully set out the detailed requirements for the form and content of those reports.
The delivery time for accounts has been reduced by one month (i.e. private companies must file accounts within nine months of the end of the accounting reference period and public companies within 6 months). The reduction in the time for filing is mitigated by the introduction of full calendar month filing periods. Therefore, if the accounting period ends on the last day of the month then the filing period also ends on the last day of the relevant month.
Although abbreviated accounts can still be filed, the qualifying annual turnover and balance sheet thresholds for a small company have been increased to £6.5m and £3.26m respectively and for a medium-sized company to £25.9m and £12.9m. You should also note that a group will now be ineligible for the small companies regime if any of its members is a body corporate (other than a company) whose shares are admitted to a regulated market in an EEA state.
Directors must not approve annual accounts unless they show a true and fair view of the financial position of the company but the notes position of the company but the notes to companies' annual accounts need no longer disclose transactions made between the company and officers, other than directors.
The mandatory business review in the directors' annual report of a PLC must provide a fair review of the company's buisness together with a description of risks and uncertainties. In the case of a quoted PLC must also include factors likely to affect future business, including such factors relating to the environment, employees, society and the community. Essential contractual or other arrangements must also be detailed unless the directors believe that such disclosure would seriously prejudice the persons concerned and be against the public interest.
A PLC’s full annual accounts and reports must be published on a freely accessible website.
IS YOUR AUDITOR LIMITING ITSELF?
On an annual basis, a company and its auditor may agree a limitation to the auditor's liability for audit of the company’s accounts. However, a limited liability agreement (LLA) must be approved by an ordinary resolution and the limits must be fair and reasonable in all the circumstances, having regard to the auditor’s responsibilities, the auditor’s contractual obligations and the standards expected of the auditor.
On a change of auditor of a private company, the term of office of the incoming auditor shall only commence when the previous auditor's term has ended. Companies and outgoing auditors now have duties to notify the authorities when and why an auditor leaves office.
For accounting periods starting on or after 6 April 2008 auditors' reports will have to state the name of the individual auditor (or, in the case of a firm, the name of the senior statutory auditor and the name of the firm), be signed by the named auditor and all signatures must be dated. The company may pass a resolution to omit the auditor’s name if any person is at risk of serious violence or intimidation as a result of the auditor being named.
It is now an offence for an auditor knowingly or recklessly to cause their report to include any misleading, false or deceptive material.
PRIVATE COMPANIES & PUBLIC OFFERS
It is no longer a criminal offence for a private company to offer shares and debentures to the public. Instead, the Secretary of State or a member or creditor of the company, may seek a restraining order or an order requiring it either to re-register as a PLC or be wound up. The canny deterrent for a person knowingly involved in making a public offer is that they can be ordered to purchase the allotted securities which are the subject of the offer. A company’s share capital can also be reduced as a separate sanction.
A SINGLE CURRENCY FOR PLCs MINIMUM SHARE CAPITAL
The authorised minimum for being issued with a trading certificate is £50,000 or the euro equivalent (currently €65,000) but not a mixture of the two. These amounts will be subject to review. Interestingly, given current exchange rates, there is nothing prohibiting a PLC from re-denominating all of its share capital, including the authorised minimum, once it has satisfied the initial minimum capital requirements.
CORPORATE MANSLAUGHTER
Replacing the offence of corporate manslaughter by gross negligence, on 6 April 2008 the new criminal offence of corporate manslaughter, applying to corporate bodies, came into force under CMCHA 2007. If the court finds that there has been a gross failing in the management of health and safety with fatal consequences, it can impose an unlimited fine and can also order the company to take remedial action and publicise the conviction.
Please note that individuals, including directors, will still be subject to health and safety legislation and the offence of manslaughter by gross negligence. |