UK: The Companies Act 2006 (the "2006 Act") – In Force From 1 October 2007

Last Updated: 17 October 2007
By Nick Davis and Felicity Bryson
Practical changes to company meetings and resolutions
Annual General Meetings (AGMs)

Under the 2006 Act, private companies are no longer required to hold AGMs (but public companies will still be required to do so). Public company AGMs require 21 days’ notice under the 2006 Act.

If a private company does decide to continue holding AGMs, only 14 days' notice will be required.

For their next financial year ending on or after 1 October 2007, private companies will not have to lay accounts and reports before general meetings (unless their memorandum or articles require them to do so).

Extraordinary General Meetings (EGMs)

The phrases "extraordinary general meeting", "EGM" and "extraordinary resolution" are no longer used under the 2006 Act.

Any relevant provisions on the passing of resolutions in a company's articles must be followed, in addition to the statutory provisions.

If more than 12 months have elapsed since the end of the last general meeting called at the request of members of a private company, members holding 5% of the company's share capital may now requisition a general meeting (as opposed to 10% under the Companies Act 1985 (the "1985 Act")).

Members may make their request for a general meeting in electronic form.

If a company gives its electronic address in a notice of general meeting or in an instrument of proxy, members are then permitted to communicate with the company by email.

Records of general meetings no longer have to be kept for an indefinite period – they only have to be kept for 10 years.

Notice of EGMs

The notice period for all general meetings of a company (other than for AGMs of a public company) will be 14 days, regardless of the type of resolution proposed to be passed at the meeting.

Shorter notice may be agreed by a majority in number of the members having the right to attend and vote at the meeting who together hold the "requisite percentage" in nominal value of the voting shares – for private companies this will be 90% (lower than the 95% under the 1985 Act) and for public companies this will remain at 95%.

Companies may also elect to serve notice of meetings by means of a website, and they will be required to notify members of the presence of the notice on the website and to provide them with certain prescribed information.

Proxies

Members of both private and public companies will have the right to appoint a proxy to attend, speak and vote at meetings on their behalf.

Weekends and bank holidays are excluded from the time counting towards the minimum 48 hour notice period required to appoint proxies.

If a company gives an electronic address either in a proxy instrument or in an invitation to appoint a proxy, the company is deemed to have agreed that members may send the proxy documentation for that meeting by email to that address.

Where the chairman of a meeting of a UK issuer holds discretionary proxies representing more than 3% of the voting rights of the company, the chairman will have a notification obligation under the Disclosure Rules and Transparency Rules.

Record Keeping Requirements

The current requirement to keep records of resolutions, decisions or meetings indefinitely has now been replaced by a time limit of 10 years from the date of the relevant resolution, decision or meeting.

Only the officers of the company in default will be liable for failing to keep the records (i.e. the company will not also be liable).

Short Notice

For private companies, consent to short notice may now be obtained from only 90% of members holding voting rights.

For public companies, the percentage remains at 95% (although consent to short notice for an AGM requires unanimity).

Special Notice

The period of time for a company to give its members notice by advertisement in a newspaper or any other manner permitted by its articles has been reduced by the 2006 Act to 14 days before the general meeting.

Ordinary Resolutions

Where the 2006 Act requires a resolution but does not specify what kind of resolution, it is an ordinary resolution which will be required (unless the company's articles require a higher majority or unanimity).

If the 2006 Act requires an ordinary resolution on a matter, a company is prevented from specifying a higher majority in its articles.

A written ordinary resolution can now be passed by a simple majority if it is passed by members representing at least 50% of the total voting rights of eligible members - unanimous consent is no longer required as under the 1985 Act.

Special Resolutions

The notice period required for meetings held for the purposes of passing special resolutions has been reduced from 21 days’ under the 1985 Act to 14 days' notice under the 2006 Act, making it the same as for an ordinary resolution.

A written special resolution now requires a majority of at least 75% of the total voting rights of eligible members.

Where a resolution of a private company is passed as a written resolution, it must be stated that it is proposed as a special resolution.

Written Resolutions

Only private companies may pass written resolutions – i.e. there is no change under the 2006 Act.

Private companies are provided with the ability to pass written ordinary resolutions by a simple majority of those eligible to vote, and written special resolutions by a 75% majority of those eligible to vote, rather then requiring unanimity for all types of written resolution.

Written resolutions must now be accompanied by statements informing members how to signify agreement to the resolution and what the date is by which the resolution must be passed if it is not to lapse.

Once a member has signified his agreement to a written resolution, his agreement may not be revoked.

A written resolution will lapse if it is not agreed to within 28 days of its circulation date (unless the articles provide otherwise).

Written resolutions still cannot be used to pass a resolution removing a director or auditor before the expiration of their period or term of office.

A company's articles of association cannot remove the ability of a private company and its members to propose and pass written resolutions.

Members' Resolutions and Statements

Members of a public company holding at least 5% of the voting rights, or at least 100 members of a public company holding on average £100 of paid-up capital, have the right to propose resolutions for an AGM agenda and to require the company to circulate details of the resolutions to all members.

Such members' requests are permitted in electronic form.

Members of a public company may also require the company to circulate a statement of up to 1,000 words relating to a resolution or other matter to be dealt with at an AGM.

Polls

There are new requirements under the 2006 Act for quoted companies if a poll is taken:

  • Quoted companies must disclose on a website the results of any poll
  • Members of a quoted company may require an independent report on any poll taken, or to be taken
  • If an independent report is requested, the directors must appoint an independent assessor within one week of the request for a report
  • A copy of the independent report on the poll must be placed on the quoted company's website
  • Certain minimum information prescribed by the Act must be contained in the independent report on the poll.

Exercise of Members' Rights

Companies may now provide in their articles for members to nominate another person to exercise (and take the benefit of) their rights as a member (the right to transfer shares cannot, however, be exercised by another person).

Registered members of traded companies can now nominate the beneficial holder of the shares to enjoy "information rights" (that is, that person may receive company documents and information).

Practical changes to the role and duties of directors and auditors

Directors

The limitation on a director only retaining office until the next AGM has been dropped from the draft model articles for private companies limited by shares.

Other directorships held by a director no longer need to be registered at Companies House.

A married woman director's maiden name must now be provided to the Registrar.

Directors' Duties

There is a new statutory statement of seven directors' duties that replaces many existing common law and equitable rules.

Directors are now required by statute to have regard to a (non-exhaustive) list of factors in exercising their duty to promote the success of the company – the principle of so-called "enlightened shareholder value".

Directors' Liabilities

Shareholders now have the ability under statute to ratify, by ordinary resolution (subject to anything in the company's articles requiring a higher majority or unanimity), a director's negligence, default, breach of duty or breach of trust.

Directors' Long-Term Service Contracts

On payment of a fee, shareholders now have the right to request a copy of a director's service contract.

Shareholder approval is now required for directors’ service contracts which are longer than 2 years (reduced from 5 years as previously required under the Companies Act 1985).

Companies are no longer prohibited from paying a director's remuneration free of income tax or agreeing to vary the director's remuneration in line with changes to income tax.

Loans to Directors

The general prohibition on loans to directors has been abolished.

Shareholder approval is now required instead – unless (among other things) the loan is for less than £10,000.

The criminal penalty for breach of the prohibition on loans has been abolished.

Payments for Loss of Office

The provisions in the 2006 Act cover compensation for loss of employment in connection with the management of company affairs and not just loss of office as a director.

Records

The current requirement to keep records of resolutions, decisions or meetings indefinitely has now been replaced by a time limit of 10 years from the date of the relevant resolution, decision or meeting.

Only the officers of the company in default will be liable for failing to keep the records (i.e. the company will not also be liable).

Written Resolutions

Written resolutions still cannot be used to pass a resolution removing a director or auditor before the expiration of their period or term of office.

Auditors

A private company's auditor will be deemed automatically reappointed each year (unless the members exercise their right to prevent automatic reappointment).

Practical changes to shareholder rights

Single Member Companies

Any type of company may be formed as, or may become, a single member company.

Derivative Claims

Derivative actions can now be brought by shareholders in a wider range of circumstances.

A derivative action is available if a director is in breach of duty (even if he hasn't benefited personally).

To bring an action, shareholders do not need to show that the directors who carried out the wrongdoing control the majority of the company's shares.

Action may be brought against another person who is not a director.

Register of Members

Persons (who need not be shareholders) seeking to inspect, or to be provided with a copy of, the register of members must now first supply their name and address and their reasons for requiring the information.

Two new offences have been created under the 2006 Act relating to requests made for information about a company's register of members.

Companies will have a right to refer a request to the court if they think that the request may not have been made for a proper purpose.

The 10 day deadline for compliance with a request for inspection or a copy of the register of members under the Companies Act 1985 is replaced by a period of 5 working days within which a company must either comply or apply to the court for relief from the obligation.

Exercise of Members' Rights

Companies may now provide in their articles for members to nominate another person to exercise (and take the benefit of) their rights as a member (the right to transfer shares cannot, however, be exercised by another person).

Registered members of listed companies can now nominate the beneficial holder of the shares to enjoy "information rights" (that is, that person may receive company documents and information).

Members' Resolutions and Statements

Members of a public company holding at least 5% of the voting rights, or at least 100 members of a public company holding on average £100 of paid-up capital, have the right to propose resolutions for an agenda at an AGM and also to require the company to circulate details of such resolutions to all members.

Such members' requests are permitted in electronic form.

Members of a public company may also require the company to circulate a statement of up to 1,000 words relating to a resolution or other matter to be dealt with at an AGM.

www.mishcon.com

This article is only intended as a general statement and no action should be taken in reliance on it without specific legal advice.

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