The next phase of changes in the Companies Act 2006 will take
effect on 1 October 2008. In this bulletin, we look at the key
changes to be implemented on this date and look ahead to the
changes to take effect next year. For further information,
please contact Leanne Wareham in our corporate team.
Company directors
The remainder of the general directors’ duties will come into
force on 1 October 2008 as follows:
1. Duty to avoid conflicts of interest (section
175)
This section replaces the current common law rule that a
director should not put himself in a position where his
personal interests or obligations to other parties might conflict
with those of the company. The common law position has always been
that such a conflict needs shareholder approval. However, under the
new Act, directors may authorise conflicts, provided that, in the
case of private companies, nothing in the company’s articles
prevents this. For private companies incorporated prior to 1
October 2008, an ordinary members’ resolution agreeing that
authorisation may be given in this way is required. For public
companies, specific authority in the company’s articles is
needed.
2. Duty not to accept benefits from third parties
(section 176)
This section mirrors the current fiduciary duty not to make
secret profits. Shareholder approval is required if a director is
to receive such benefits on a case-by-case basis.
3. Duty to declare interests in proposed transactions or
arrangements (section 177)
Directors will be required to continue to declare their
interests in proposed transactions or arrangements with the
company. However the duty is now wider as directors are required to
declare the extent of any interest, as well as the nature of it.
The requirement to declare interests in existing transactions and
arrangements is now dealt with separately, in section 182.
Directors - other changes
Companies will need to have at least one director who is an
individual (as opposed to a corporate director). Companies
incorporated prior to 8 November 2006 have a further two years
(until 1 October 2010) to comply. Also, as of 1 October 2008, it
will no longer be possible for people under the age of 16 to be a
director.
Financial assistance
Section 151 of the Companies Act 1985 (prohibition on a company
giving financial assistance in relation to the acquisition of its
own shares) will be repealed to the extent that it relates to
private companies. Essentially, this will put an end to the
“whitewash” procedure which private companies needed to comply with
in order to give financial assistance.
However, directors need to exercise caution in relation to
transactions which would previously have been caught by section
151. They should be aware that these may still be unlawful (for
example where they involve a reduction of capital) and must keep in
mind their general duty to promote the success of the company.
Where the continued solvency of the company is potentially an
issue, particular care should be taken and it is likely that the
company’s accountants will need to be closely involved.
Public companies continue to be barred from giving financial
assistance and private companies are similarly prevented from doing
so in relation to the acquisition of shares in a public
company.
Reduction of share capital
From 1 October there will be a new, simpler process available
under which private companies will be permitted to reduce their
share capital without the need to go to court. Instead, a special
resolution of the members, supported by a directors’ solvency
statement, can be used.
Company names
There are new provisions making it possible to object to a
company’s registered name where that name is the same as a name
associated with the objecting party, or is sufficiently similar
that its use in the UK would be misleading by suggesting a
connection between the new company and the objecting party. This is
aimed at curbing the registration of company names in bad
faith.
New annual return form
A new annual return form 363a will be used from 1 October 2008.
The information to be provided depends on whether the company is
traded on a regulated market (including the Stock Exchange but not
AIM). Private or non-traded public companies need only list
the names (not addresses) of their shareholders, whereas
public traded companies need to provide a list of shareholders'
names and addresses who hold at least 5% of the issued shares of
any class.
Looking ahead – 1 October 2009
On 1 October 2009, the remainder of the Companies Act 2006 will
finally come into effect. A large number of provisions are due to
come into force on this date, affecting many areas of company law,
particularly the way in which companies are formed and
administered. In particular, the current “Table A” default set of
articles of association will be replaced with three new sets of
articles. It would be sensible at that stage for companies to
review their articles and to consider updating them to ensure
consistency and compliance with the new Act.
We will, of course, keep you up-to-date with all the changes as
the Act nears its final implementation date.
talk to us