UK: Who Can Be A Director?

The Company Law Reform Bill ("the Bill") was passed in the House of Lords after receiving its third reading on 23 May 2006. The Bill is now at the committee stage in the House of Commons having been read for the second time on 6 June 2006. As readers of previous articles will be aware, the Bill aims to reform company law and includes many provisions of interest to directors. The provisions relating to the new statutory statement of directors’ duties have been much discussed in both academic and non academic circles. The Bill, however, makes some significant changes to other aspects of the law relating to directors, including in relation to who can serve as a director.

As is currently the case, once the Bill passes into law, private companies will need to have at least one director with public companies having at least two directors. What is new is that each type of company will have to have at least one director who is a natural person i.e.. an individual. It will accordingly no longer be possible for a company to have one director with that director being a company in itself.

If a company is in breach of this requirement the Bill gives the Secretary of State power to direct a company to comply with the Bill. Failure to comply with such direction renders the company and every officer of the company in default guilty of an offence punishable by a fine.

The Bill also provides a minimum age of 16 for directors. Any appointment made in contravention of that clause is void. The prohibition on under age directors does not provide protection from criminal prosecution or civil liability if an individual acts as a director contrary to that provision. Any under age directors currently in office will cease to be directors on the appropriate clause coming into force.

It is expected that the Bill will be passed in 2006 with most of its provisions coming into force in Spring 2007. As a housekeeping exercise, companies may wish to consider the identity of current directors with a view to establishing whether steps need to be taken in advance to comply with the Bill.

The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Readers should not act on the basis of the information in this article without taking appropriate professional advice upon their own particular circumstances.