UK: Companies Act 2006 – Some Potential Pitfalls

Last Updated: 1 June 2010
Article by Alex Melrose

Whilst we are all now starting to get to grips with the new provisions of the Companies Act 2006, ("CA 2006"), there are areas which are still causing issues for people, or that may give rise to some unexpected and unwanted problems. Set out below is guidance on some of those areas.

1.

Filing amendments to Articles of Association for a company incorporated pre-1 October 2009

 

If a company is planning to amend its articles, it will need to pass a special resolution (under s.21 CA 2006) approving those amendments and then file the amended articles (along with the special resolution) with the registrar of Companies House (s.26 CA 2006).

The potential difficulties arise in relation to what needs to be filed with Companies House, particularly if the company was incorporated pre-1 October 2009 and has retained its long form memorandum of association. Under s.28 CA 2006, certain provisions of the memorandum of association are now deemed to be included in the articles of association and s.18 CA 2006 requires that a company's articles must be contained in a single document. The amended articles to be filed at Companies House must therefore contain those provisions of the memorandum of association (and any others that a company wants to retain) either in long-form in the body of the articles, or appended to the back of the articles with a clear and express note stating that such provisions now form part of the articles. A company must ensure that any provisions of its memorandum that it wishes to retain are included in its articles or the filing may be rejected.

One additional issue relates to the provisions of the memorandum which are deemed to be included in the articles. If, as some companies have chosen to do when amending their articles, a special resolution is passed deleting the provisions of the memorandum that are deemed to form part of the articles (due to their apparent obsolescence), a company should ensure that none of these provisions are required. A common mistake has been to delete the provision in the memorandum relating to limited liability that would automatically transfer to the articles (under s.28 CA 2006), only to find that the existing articles do not contain such a provision and the Company appears to have inadvertently changed its status. Fortunately, there is a saving provision at paragraph 10 to CA 2006 (Commencement No. 8, Transitional Provisions and Savings) Order 2008 which prevents a company from changing its status in this manner, but a prudent practitioner would probably do better than to rely on this.

2.

Written Resolution Lapse Date

 

Under the Companies Act 1985, written resolutions were deemed passed once the last member had signed the resolution. This led to resolutions being circulated indefinitely and the potential for membership to change during the period of circulation. Changes made under the CA 2006 mean that written resolutions now lapse if they are not agreed within 28 days of the circulation date (s.297 CA 2006). Shareholders should be made aware of this point in the notes to any written resolution circulated.

3.

Derivative Actions

 

The basic rule from Foss v Harbottle is that in any action in which a wrong is alleged to have been done to a company, the proper claimant is the company itself and not the individual shareholders. A shareholder therefore cannot generally bring a claim to recover a diminution in the value of his shares in circumstances where the diminution arises because the company has suffered an actionable loss. The proper course is for the company to bring the action and recoup the loss with the consequence that the value of the shares will be restored. Further, a director owes his fiduciary duties (as are now codified in CA 2006) to the Company not to the shareholder.

Under s.260 CA 2006, however, shareholders can now bring derivative claims which allow them to sue on behalf of the company, following court permission. The shareholder will need to pass through two initial stages where (i) he will have to show a prima facie case and (ii) the court decides, on evidence from the applicant and the respondent whether the case should proceed. A claim can only be made if it is based on actual or proposed acts or omissions which involve negligence default, breach of duty or breach of trust by a director.

In light of this, Directors should be aware of their codified duties in advance and be kept up to date. They should also ensure that under their D&O insurance and directors' indemnities (if applicable) they are covered for the cost of dealing with and defending derivative claims. It may also be prudent to update the board procedure in relation to meetings, minutes and board packs and to revise document retention policies to ensure that important decisions are properly evidenced.

4.

Environmental Reporting requirements

 

All companies must prepare a directors' report for each financial year (s.417 CA 2006) and all directors' reports (other than those for small companies) must include a business review (s.417(1) CA 2006). Certain types of companies must now include environmental information in their business reviews.

To the extent that it is necessary for an understanding of the development, performance or position of the company's business, the business review of quoted companies (as defined by s.385(7) CA 2006) must also include, among other things, information about environmental matters (including the impact of the company's business on the environment) and information about any policies of the company in relation to such matters and the effectiveness of those policies (s.417(5)(b)(i) CA 2006). Where directors of quoted companies have nothing to report on environmental matters, the business review must confirm that it does not contain such information.

Furthermore, s.417 (6) CA 2006 requires all companies (other than small and medium sized companies as defined by CA 2006), to include in their business reviews, where necessary, an additional analysis using non-financial key performance indicators which include information relating to environmental matters (s.417(6)(b) CA 2006).

www.rosenblatt-law.co.uk

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.