Welcome to the latest edition of Did you know that ...?, our regular briefing, which highlights key legal developments affecting companies and their advisers. We hope that you will find it useful and informative. If you think this publication may be of interest to any of your colleagues or acquaintances, please feel free to forward it to them and we will be happy to add them to our mailing list.

HEADLINES

Companies Act 2006

Some of the key deregulatory aspects of the Companies Act 2006 for private companies are now in force, making reductions of share capital and transfers of non-cash assets between group companies less problematic, and debt-funded transactions more straightforward. See below for more information.

Group restructurings – share capital

Financial assistance – simplification

Reduction of capital – simplified private company procedure

Transfer of non-cash assets between group companies

We also outline the trading disclosure requirements that apply to UK companies. Failure to comply with these is an offence, so it is important that you review the requirements and make sure you are compliant.

Regulations on Trading Information Disclosures under the Companies Act 2006

Corporate Finance

The UKLA has recently published List! 19, which raises several interesting issues for sponsors.
List 19! Corporate briefing

Pensions – New Rules On Moral Hazard

New rules on moral hazard, announced in April 2008, have now been tabled. The new rules are to be retrospective to 14 April 2008.
Moral hazard – new legislation

Directors Beware!

Kappler -v- Secretary of State for Trade and Industry [2006] EWHC 3694 (Ch)

Secretary of State for Trade and Industry -v- Thornbury [2007] EWHC 3202 (Ch)

Re AG (Manchester) Ltd [2008] EWHC 64 (Ch)

COMPANIES ACT 2006

Group Restructurings – Share Capital

The Companies Act 2006 has made a number of changes which increase the options available to groups of companies in managing their capital and realigning assets and liabilities. Group restructurings – share capital

Financial Assistance - Simplification

There is no longer a prohibition on the giving of financial assistance in relation to private companies, although the prohibition still applies where the transaction involves a public company. Financial assistance – simplification

Reduction Of Capital –Simplified Private Company Procedure

A private limited company may now reduce its share capital through a simplified procedure which doesn't involve an application to court. Reduction of capital – simplified private company procedure

Transfer Of Non-Cash Assets Between Group Companies

A change in the law which came into force in April 2008 has made intra-group transfers of assets more straightforward. Transfer of non-cash assets between group companies

Regulations On Trading Information Disclosures Under The Companies Act 2006

The Regulations on Trading Information Disclosures under the Companies Act 2006 came into force on 1 October 2008.

From 1 October 2008 the previous trading disclosure requirements for companies (i.e. where a company must display certain information such as its name) under the Companies Act 1985 were repealed and replaced by sections 82-85 of the Companies Act 2006 and The Companies (Trading Disclosures) Regulations 2008 (the "Regulations") made under them.

The policy objective behind the Regulations is that the legal identity of every company should be revealed to all who have, or may wish to have, dealings with it. This is so that they are warned of its limited liability status and can find the public information about a company registered in the United Kingdom at Companies House or by inspection of its company records. The principal requirement is to have the company's name included in specified documents, websites and on signs at premises.

The Regulations are clearer than the previous requirements and have extended them somewhat. A failure to comply with the Regulations, without reasonable excuse, results in the company and every officer of the company who is in default being guilty of an offence and liable to a fine. Therefore it is important that you review your trading disclosures in communications and on websites and premises to ensure that you are compliant.

The table below sets out the trading information that a company is required to disclose in business communications and other documents and on all company websites:

Where Disclosure Is To Be Made

Type Of Disclosure To Be Made
  • Business letters
  • Order forms
  • Websites
  • The company's place of registration in the UK and its registered number;
  • The address of its registered office;
  • In the case of an investment company, the fact that it is such a company;
  • In the case of a limited company exempt from the obligation to use the word "limited" as part of its name, the fact that it is a limited company;
  • In the case of a community interest company which is not a public company, the fact that it is a limited company; and
  • If, in the case of a company having a share capital, there is a reference to the amount of share capital on its business letters, order forms and websites, that disclosure must be to paid-up share capital.
  • Business letters, websites, notices and other official publications;
  • Bills of exchange, promissory notes, endorsements and order forms;
  • Cheques purporting to be signed by or on behalf of the company;
  • Orders for money, goods or services purporting to be signed by or on behalf of the company;
  • Iinvoices and other demands for payment, receipts and letters of credit;
  • Applications for licences to carry on a trade or activity; and
  • All other forms of its business correspondence and documentation.

Registered name

It should be noted that the content of a communication determines whether it is a business letter, not whether it is in hard copy or electronic form. For example, an email or a compliment slip may constitute a business letter depending on its content, and therefore must disclose the trading information required to be disclosed in a business letter.

The Requirement To Display Registered Name

Under the Regulations, the company's registered name must be displayed at its registered office, any place where documents and other company records are available for inspection and at any other location that it carries on business. A company must position its registered name so that it may be easily seen by any visitor to the premises. The Regulations require the registered name to be displayed continuously except where the premises are shared by six or more companies in which case each company is required to display its registered name for at least 15 continuous seconds at least once in every three minutes.

Disclosure Of Directors' Names

The Regulations also require that where a business letter includes the name of any director of that company, other than in the text or as a signatory, the letter must disclose the name of every director of that company.

CORPORATE FINANCE

List! 19

The UKLA has recently published List! 19, which raises several interesting issues for sponsors and listed companies.
List 19! Corporate briefing

PENSIONS – NEW RULES ON MORAL HAZARD

New rules on hazard, which were announced in April 2008 and which will have retrospective effect, have now been tabled as amendments to the Pensions Bill.
Moral hazard – new legislation

DIRECTORS BEWARE!

Recent case-law highlights the perils for directors of not taking an active role in fulfilling their responsibilities.

Kappler -v- Secretary Of State For Trade And Industry [2008] 1 BCLC 120

In Kappler -v- Secretary of State for Trade and Industry, disqualification proceedings were upheld against a director on the basis that he had caused the company to raise false invoices in order to dishonestly obtain money from the bank. The director did not himself write the invoices but it was held that he was aware of the impropriety and that "allowing" them to be issued equated to "causing" them to be issued. He was disqualified for 11 years.

Secretary Of State For Trade And Industry -v- Thornbury [2008] 1 BCLC 139

In the second case, Secretary of State for Trade and Industry -v- Thornbury, a disqualification order was brought against a director for causing or allowing the company to breach its statutory obligations to pay HM Customs. The director received verbal assurances from other directors as to the financial health of the company but carried out no further investigation. It was held that, although the director had not been dishonest, it was not an answer to a charge of unfitness for the director to argue that the matter had been left to others unless it was reasonable to do so and accordingly he was disqualified for two years.

Re AG (Manchester) Ltd [2008] BCLC 321

In Re AG (Manchester) Ltd, disqualification orders were sought against former directors (L and W) of a company which had gone into liquidation on the basis that certain dividends had been declared unlawfully. It was alleged that W and L's husband had formed an 'inner group' of directors which had usurped the functions of the full board and made all strategic and financial decisions, including paying dividends, without notice to, or the consent of other directors. W was held to be unfit to be concerned in the management of the company. L was herself held to be unfit to be a director on the basis that she allowed her husband and the inner group to take all financial and strategic decisions, including the payment of dividends. Such an abdication of responsibility resulted in L being disqualified for 4 years.

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.