UK: Commencement Dates For The Companies Act 2006 Announced

Last Updated: 21 March 2007
Article by Guy M. Nesbitt

On 8 November 2006 the Companies Act 2006 (the "Act") received Royal Assent and became law. The Act is notable for its size and at 1,300 sections and 16 schedules it is the largest Act that has ever been passed by Parliament. The Government expects the Act to save business up to £250 million a year, by reducing the regulatory burden on companies and enhancing the flexibility of legislation so as to enable the law to change with the developing business environment.

Although the Act is on the statute books, many of the provisions in the Act require commencement by secondary legislation. The process of implementing parts of the Act has already begun with the introduction of:

  • the requirement for companies to state on their websites their name, registered number, place of registration and registered office address;
  • regulations dealing with company communications with shareholders and others, including electronic communications; and
  • provisions giving a public company the right to investigate who has an interest in its shares.

On 28 February 2007, Margaret Hodge MP, Minister of State for Industry and the Regions announced the dates for the implementation of the remaining parts of the Act. Of the notable issues, some of which have received a lot of press attention, the following will be implemented in:

October 2007

  • Company’s Directors (Part 10 of the Act)

The majority of the provisions dealing with directors will be introduced including the sections dealing with the codification of directors’ duties. Currently directors’ duties are governed by case law and market practice. The Act will codify many duties that are placed on directors including the controversial concept of ‘enlightened shareholder value’. Although the duty to avoid conflicts of interest will not be implemented until October 2007.

  • Derivative claims and proceedings by members

Shareholders of companies will be able to bring claims on behalf of a company against directors for negligence, default or breach of duty. Although certain criteria will have to be satisfied before a shareholder can bring a claim. Uncertainty exists at the moment as to how derivative claims under the Act will work in practice and a clearer picture will not emerge until such time as the first cases are brought under the Act.

April 2008

  • Company secretaries

Private companies will no longer be required to have a company secretary.

October 2008

  • Company’s constitution

The memorandum of association as we currently understand it will no longer exist. Existing companies’ memorandum of association will be treated as part of the articles of association. Further, a company’s objects will be unrestricted unless a company chooses specifically to restrict them.

  • Acquisition by limited company of its own shares

The current prohibition on a private company giving financial assistance for the purchase of shares in itself will be abolished and in turn the need to carry out the whitewash procedure will no longer be required. Although, the prohibition on financial assistance for public companies will remain.

In addition to the above provisions other aspects of the Act will be implemented and a full list of the new regulations and the dates in which they are to be introduced can be found attached to the Minister’s statement of 28 February.

At the same time as the announcement of the proposed commencement dates for the Act, the Minister issued a consultation document which will seek views on implementation and the secondary legislation required in order to give full effect to the Act.

The Government have also started to issue summary guides to the Act, of which "Companies Act 2006 – A Summary Of What It Means For Private Companies" and "Companies Act 2006 – Private Company Information" are now available on the Department of Trade and Industries website.

It is important that companies keep up to date with the implementation of the Act if they are to receive the purported benefits that the Government expect it to deliver. However, it is understandable that such a hefty piece of legislation would appear daunting and so we will assist by keeping you abreast of developments as and when they happen.

Useful Links

The Companies Act 2006

Margaret Hodge MP, Minister of State for Industry and the Regions, statement dated 28 February 2007

The DTI Companies Act 2006 website

Companies Act 2006 – A Summary Of What It Means For Private Companies

Companies Act 2006 – Private Company Information

Frequently asked questions on the Companies Act 2006

Implementation of Companies Act 2006 – A Consultative Document, February 2007

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.

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