As you may recall, on 1 October 2008, the next set of provisions of the Companies Act 2006 (the Act) came into force. Many of these will have a direct impact on the way you run your business but it is likely that most of you will be focusing on the repeal of certain provisions under the old 1985 Act. The thorn in the side of many corporate deals, the financial assistance "whitewash" procedure for private companies, has been scrapped.
FINANCIAL ASSISTANCE: WHITEWASH HAS BEEN STRIPPED OUT
If there is one aspect of company law that the introduction of the Act has heralded, it is the removal of the general prohibition on financial assistance by private companies for the acquisition of shares in itself or in other private companies. 1 October 2008 saw the repeal of those provisions in the old 1985 Act and will mean that the thorn in the side of many a deal, the "whitewash" procedure, will no longer be necessary for private companies.
Note, however, that PLCs remain bound by financial assistance rules. Of course corporate benefit and broader capital maintenance principles will still apply to all companies.
OBJECTING TO A COMPANY'S NAME
Just in case you were considering starting a new budget airline called Queasy Jet or Brian Air, a new right to object to such names has been introduced for individuals. Primarily as an attempt to defeat opportunistic registrations, from now on an individual can apply to an adjudicator to force a company to change its name. Of particular use is that this right can be exercised before the offending named entity commences trading. The applicant must show that the offending name was chosen with the principal intention of obtaining monies from the applicant (e.g. by engineering the purchase of that name from the legal registrant) or preventing him from using a name in which he has already built up goodwill.
DISPLAYING YOUR COMPANY'S NAME
Staying with the theme of company names, it is no longer permitted to squirrel away your company name in a cupboard under the stairs as the Act has extended the obligations on a company to display its legal identity.
There is no change to the requirement to disclose a company's registered name in business correspondence (including letters, order forms, invoices, cheques, receipts, publications etc) and on websites. However, there are now additional disclosure requirements for inclusion on business letters, order forms and websites whereby the company must also provide its place of registration, company number and registered office. These obligations are further increased if the company becomes insolvent, liquidated etc. A business letter must also show all directors of that company or none at all with no middle ground. Investment companies, limited companies that do not have "limited" in their name, private community interest companies and certain companies obliged to show their paid-up share capital are also subject to more onerous disclosure provisions.
Subject to a "residential use" exception, the registered name of a company must be displayed not only at its registered office but also at all locations where it carries on its business and anywhere else that it keeps company records available for inspection. The name must be easily visible to a visitor and displayed continuously unless the premises are shared by six or more companies, then it can be displayed for at least 15 seconds in every three minutes. So an electronic display with rotating names may be one solution.
Note also a new criminal offence and potential fines for directors and companies where they do not respond in time (five working days) to a written request from any person with whom it does business regarding the location of company records.
DO YOU STILL QUALIFY AS A DIRECTOR?
If you are reading this then "probably", is the short answer. As of 1 October 2008 a company must have at least one director who is a natural person, (i.e. one that is not a corporate entity). However, there is a grace period until October 2010 in certain circumstances if this is not the case. Also all individuals who are directors must be at least 16 years of age at the time that their appointment commences and all directors under 16 will now cease automatically to be a director. You should review your corporate structure accordingly.
DIRECTORS' DUTIES & CONFLICTS
As with directors' general duties, the Act has codified the existing common law and equitable principles relating to conflicts of interest between a director and the company.
The duty to declare in advance the nature and extent of an interest in a proposed transaction or arrangement with the company is retained for companies with more than one director. This duty extends to indirect interests in such arrangements. The duty is a continuing one, so that the director must continue to disclose on the same transaction should the situation continue to evolve.
Particular attention should also be given where you are a director of more than one company. A duty of confidentiality to one may prevent you from revealing a conflict to another. In such circumstances you may need to seek independent legal advice. Alternatively, modification of a company's articles may avoid such an issue arising.
Note too that the duty to avoid conflicts continues after the director has left a company if the matter concerns information that the director became aware of whilst he was a director.
Whilst there are exceptions, as a general rule a director should not accept benefits or gifts from third parties arising from his directorship. The members can sanction specific gifts and can incorporate a de minimis into the articles.
REDUCTION OF SHARE CAPITAL
A private company may now reduce its share capital without making an application to the court. New provisions permit a company to file at Companies House a special resolution together with a solvency statement signed by all the directors. To ensure that the directors' minds are focused on the prescribed contents of the solvency statement it is a criminal offence for a director to make it without having reasonable grounds to support it. However, if one or more directors refuse to sign then the company must revert to the court route.
INSTITUTIONAL INVESTORS: VOTING TRANSPARENCY
Since 2002 institutional investors have been subject to a voluntary code requiring fund managers to report to their clients how they are exercising their voting rights in an attempt to improve voting transparency. The Act now effectively reserves the right for the Secretary of State to make such voluntary code mandatory. It would appear that this power has been included as a stick to "encourage" those not yet complying to adopt the voluntary best practice regime. Relevant institutions include unit trusts, open-ended investment companies, investment trusts, pension schemes, undertakings authorised to carry on long-term insurance business and collective investment schemes.
HISTORICAL PERSONAL INJURY CLAIMS
Any company dissolved prior to 16 November 1969 may be restored if there is an existing personal injury claim against it.
POLITICAL DONATIONS AND INDEPENDENT CANDIDATES
Shareholder approval was previously in place for donations or expenditure exceeding £5,000 to political parties but this has now been extended to independent election candidates.
LLP's ACCOUNTS RULES
If you are involved in a Limited Liability Partnership (LLP) please note that for financial years beginning on or after 1 October 2008, certain of the private company accounting provisions of the Act will apply to you. Each LLP will need to determine whether it falls within the criteria for a small or medium-sized LLP (e.g. annual turnover <£6.5m or <£25.9m respectively) in order to take advantage of the exemptions permitting provision of abbreviated annual accounts and relief from audit.
There is now one year to wait until the remaining provisions of the Act are implemented on 1 October 2009. If anything happens in the meantime we will let you know.
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.