UK: Companies Act 2006 – What You Need To Know

Last Updated: 22 March 2007
Article by Charlotte Hawkins

What is changing and when?

The Companies Act 2006 (the Act) is a major overhaul of company law. It is intended to simplify and modernise the existing law, including by removing a number of administrative requirements for private companies.

We will be producing a series of briefings to keep you up to date on the Act. This first briefing gives a short overview of what is changing and when. Further briefings will explore some of the changes in more detail, what they mean for your business and the steps you need to take.

Will the Act replace the existing Companies Acts?

The Act is intended to provide a comprehensive code of company law and will replace almost all of the provisions in the Companies Act 1985 (the 1985 Act), the Companies Act 1989 and the Companies (Audit, Investigations and Community Enterprise) Act 2004.

When will the Act come into force?

The Act received royal assent on 8 November 2006. Some parts of the Act are already in force (having come into force on royal assent or in January) with other parts coming into force in April 2007.

On 28 February 2007 the Government announced the commencement timetable for the remaining provisions of the Act, which will come into force on 1 October 2007, 6 April 2008 and 1 October 2008.

The Government also published proposals on secondary legislation (including draft model articles) on 28 February 2007. The consultation on these proposals will remain open until 31 May 2007. The Government intends to make all secondary legislation (or lay it in draft if parliamentary approval is required) by the end of 2007.

See the implementation timetable below for further details.

What is already in force?

The provisions that have already come into force include:

Disclosure of company details Companies are required to disclose company details (e.g. company name, place of registration, registered number and registered office) on all business correspondence (including e-mails) and websites. See our last corporate clip for further details.

Company Communications - The Act contains provisions facilitating electronic communications with shareholders, designed to deliver significant cost savings to businesses. Key changes include:

  • the electronic communications provisions now apply to all communications by or to a company pursuant to the Act (subject to contrary provisions in other legislation); previously such provisions only applied to communications by a company in certain circumstances;
  • shareholders can communicate with the company by electronic means where the company gives an electronic address in a meeting notice or proxy documents;
  • subject to shareholder approval (either by resolution or a provision in the articles) companies may supply documents to shareholders by posting them on a website. Companies still need to ask shareholders individually for consent, but shareholders will be deemed to have consented if they do not object within 28 days of the company’s request (i.e. shareholders will have to deliberately ‘opt out’).

Further detail on these provisions, and their practical implications, will be provided in the next briefing in this series.

Disclosure and Transparency Rules - The FSA Transparency Rules implement the EU Transparency Directive. The key changes include:

  • the introduction of new financial reporting rules for Official List companies, including amended content and timing requirements for financial reports and new requirements for quarterly reports or management statements and for responsibility statements;
  • a new regime for disclosure of major shareholdings for companies listed on the Official List, AIM and PLUS markets. The basic obligation being that a shareholder must notify the company of the percentage of voting rights he holds if the percentage reaches, exceeds or falls below 3% or any whole percentage figure above 3%.

New statutory basis of damages for false or misleading statements - Directors are given a new ‘safe harbour’ from negligence claims by investors in relation to statements in the directors’ report, directors’ remuneration report and any summaries of such reports. Directors will, however, be liable to the company if they knew, or were reckless as to whether, a statement was untrue or misleading. Official List companies will also be liable in certain circumstances to investors for false or misleading statements in periodic financial reports and preliminary announcements (and directors may be liable in turn to the company).

What is coming into force on 6 April 2007?

The Act will implement the Takeover Directive and give the Takeover Panel statutory powers to make and enforce rules to regulate all public company takeovers. The Panel currently only has such powers in respect of Official List companies pursuant to the Takeovers Directive (Interim Implementation) Regulations 2006, which will be repealed and replaced by the relevant provisions of the Act.

What is coming into force on 1 October 2007?

The key changes to be introduced include:

  • the codification of directors’ core duties (other than provisions relating to directors’ conflict of interest duties, which will not come into force until 1 October 2008);
  • a new (arguably easier) derivative right of action enabling shareholders to bring an action on behalf of the company;
  • the ability (provided the articles of association allow) for a registered member to nominate another person (who need not have a beneficial interest in the shares) to exercise the rights of the member, such as the right to attend and vote at general meetings or to receive communications from the company;
  • simplification of meetings and resolutions procedures:
    • greater ability for private companies to pass written resolutions, which need not be unanimous;
    • no requirement for private companies to hold an annual general meeting;
    • notice periods for general meetings will be 14 days (other than AGM’s of public companies, which will still require 21 days’ notice);
  • the requirement for Official List companies to produce an expanded business review which covers:
    • the future development, performance and position of the company’s business;
    • information about environmental matters (including the company’s impact on the environment), the company’s employees, and social and community issues; and
    • information about persons with whom the company has contractual or other arrangements which are essential to the business of the company.

What is coming into force in 2008?

The key changes include:

  • the requirement for companies to have at least one director who is a natural person;
  • simplification of the regulatory regime for private companies including:
    • no requirement to have a company secretary;
    • the ability to give financial assistance on the acquisition of their shares;
    • the ability to reduce their share capital without the sanction of the court;
  • the abolition of the concept of authorised share capital;
  • new model articles for private and public companies (draft model articles have been published as part of the consultation document published on 28 February 2007).

Future briefings will set out in more detail the key changes coming into effect later this year and in 2008.

Useful Links

The text of the new Act, together with the Explanatory Notes, is available on the website of the Office of Public Sector Information at www.opsi.gov.uk.

The First Commencement Order and draft Second Commencement Order, together with their implementation briefings, are also available at www.opsi.gov.uk.

A number of useful DTI publications are available at www.dti.gov.uk/bbf/co-act-2006 including:

  • "Companies Act 2006: a summary of what it means for private companies" (which provides a summary of the provisions the DTI considers will be of interest to small private companies);
  • "Companies Act 2006: private company information" (which provides further information on the same topic and is intended for those with some knowledge of company law); and
  • "Frequently asked questions on the Companies Act 2006".

The new Disclosure and Transparency Rules are available at www.fsahandbook.info; see also the special edition of List! published on 20 December 2006 at http://www.fsa.gov.uk/pubs/ukla/list_dec06.pdf

Further Information

For further information please contact Charlotte Hawkins on 020 77101649 or at charlotte.hawkins@kemplittle.com.

Implementation Timetable

Date

Event

8 November 2006

Act receives royal assent

1 January 2007

The following regulations come into force:

  • The Companies Act 2006 (Commencement No. 1, Transitional Provisions and Savings) Order 2006 (2006/3428), which sets the January and April implementation and repeal dates referred to below;
  • The Companies (Registrar, Languages and Trading Disclosures) Regulations 2006 (2006/3429), including provisions on the disclosure of company details.

20 January 2007

The following provisions come into force:

  • provisions concerning a public company’s right to investigate who has an interest in its shares, which replace, with few significant changes, the 1985 Act provisions relating to "section 212 notices";
  • provisions facilitating electronic communications with shareholders;
  • the FSA Transparency Rules (which apply to companies listed on the Official List, AIM and PLUS markets);
  • a new statutory basis of damages for false or misleading statements in directors’ reports, directors’ remuneration reports and financial statements derived from such reports.

8 February 2007

The draft Companies Act 2006 (Commencement No. 2, Consequential Amendments, Transitional Provisions and Savings) Order 2007 is laid before Parliament. If approved by both Houses, it will come into force on 6 April 2007 and implement the Takeover Directive (see below).

6 April 2007

Part 28 of the Act implementing the Takeover Directive comes into force and the Takeovers Directive (Interim Implementation) Regulations 2006 (SI 2006/1183) are revoked.

Certain sections of the 1985 Act are repealed, including:

  • authentication of documents (section 41);
  • maximum age limit (70) for directors of a public company (sections 293 and 294);
  • requirements on directors to disclosure interest in shares and the company’s duty to keep a register of directors’ interests (sections 324 to 326, 328, 329 and parts 2 to 4 of Schedule 13) – directors of traded companies will continue to be subject to disclosure requirements under the Disclosure Rules etc.; and
  • various provisions in Part 10 of the 1985 Act affecting directors.

1 October 2007

The following provisions come into force:

Part 9 (exercise of members’ rights);

Part 10 (a company’s directors), other than provisions relating to directors’ conflicts of interest duties, directors’ residential addresses and underage and natural directors;

Part 11 (derivative claims and proceedings by members);

Part 13 (resolutions and meetings) and related sections 485-488 of Part 16 (audit);

Part 14 (control of political donations and expenditure);

Section 417 of Part 15 (contents of the directors’ report: business review);

Part 29 (fraudulent trading);

Part 30 (protection of members against unfair prejudice);

Part 32 (company investigations: amendments).

End of 2007

The Government intends to have made all secondary legislation or, if parliamentary approval is required, to have laid it in draft.

6 April 2008

The following provisions come into force:

Part 12 (company secretaries);

Part 15 (accounts and reports), other than section 417 – see above;

Part 16 (audit), other than sections 485-488 – see above;

Part 19 (debentures);

Part 20 (private and public companies);

Part 21 (certificate and transfer of securities);

Part 23 (distributions);

Part 26 (arrangements and reconstructions);

Part 27 (mergers and divisions of public companies);

Part 42 (statutory auditors).

1 October 2008

All remaining parts of the Act come into force, including:

Part 2 (company formation);

Part 3 (a company’s constitution);

Part 10 (a company’s Directors) – provisions relating to directors’ conflict of interest duties, directors’ residential addresses and underage and natural directors;

Part 17 (a company’s share capital);

Part 18 (acquisition by a limited company of its own shares).

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