The next phase of changes in the Companies Act 2006 will take effect on 1 October 2008. In this bulletin, we look at the key changes to be implemented on this date and look ahead to the changes to take effect next year.
Company directors
The remainder of the general directors' duties will come into force on 1 October 2008 as follows:
Duty to avoid conflicts of interest (section 175)
This section replaces the current common law rule that a director should not put himself in a position where his personal interests or obligations to other parties might conflict with those of the company. The common law position has always been that such a conflict needs shareholder approval. However, under the new Act, directors may authorise conflicts, provided that, in the case of private companies, nothing in the company's articles prevents this. For private companies incorporated prior to 1 October 2008, an ordinary members' resolution agreeing that authorisation may be given in this way is required. For public companies, specific authority in the company's articles is needed.
Duty not to accept benefits from third parties (section 176)
This section mirrors the current fiduciary duty not to make secret profits. Shareholder approval is required if a director is to receive such benefits on a case-by-case basis.
Duty to declare interests in proposed transactions or arrangements (section 177)
Directors will be required to continue to declare their interests in proposed transactions or arrangements with the company. However the duty is now wider as directors are required to declare the extent of any interest, as well as the nature of it. The requirement to declare interests in existing transactions and arrangements is now dealt with separately, in section 182.
Directors - other changes
Companies will need to have at least one director who is an individual (as opposed to a corporate director). Companies incorporated prior to 8 November 2006 have a further two years (until 1 October 2010) to comply. Also, as of 1 October 2008, it will no longer be possible for people under the age of 16 to be a director.
Financial assistance
Section 151 of the Companies Act 1985 (prohibition on a company giving financial assistance in relation to the acquisition of its own shares) will be repealed to the extent that it relates to private companies. Essentially, this will put an end to the "whitewash" procedure which private companies needed to comply with in order to give financial assistance.
However, directors need to exercise caution in relation to transactions which would previously have been caught by section 151. They should be aware that these may still be unlawful (for example where they involve a reduction of capital) and must keep in mind their general duty to promote the success of the company. Where the continued solvency of the company is potentially an issue, particular care should be taken and it is likely that the company's accountants will need to be closely involved.
Public companies continue to be barred from giving financial assistance and private companies are similarly prevented from doing so in relation to the acquisition of shares in a public company.
Reduction of share capital
From 1 October there will be a new, simpler process available under which private companies will be permitted to reduce their share capital without the need to go to court. Instead, a special resolution of the members, supported by a directors' solvency statement, can be used.
Company names
There are new provisions making it possible to object to a company's registered name where that name is the same as a name associated with the objecting party, or is sufficiently similar that its use in the UK would be misleading by suggesting a connection between the new company and the objecting party. This is aimed at curbing the registration of company names in bad faith.
New annual return form
A new annual return form 363a will be used from 1 October 2008. The information to be provided depends on whether the company is traded on a regulated market (including the Stock Exchange but not AIM). Private or non-traded public companies need only list the names (not addresses) of their shareholders, whereas public traded companies need to provide a list of shareholders' names and addresses who hold at least 5% of the issued shares of any class.
Looking ahead – 1 October 2009
On 1 October 2009, the remainder of the Companies Act 2006 will finally come into effect. A large number of provisions are due to come into force on this date, affecting many areas of company law, particularly the way in which companies are formed and administered. In particular, the current "Table A" default set of articles of association will be replaced with three new sets of articles. It would be sensible at that stage for companies to review their articles and to consider updating them to ensure consistency and compliance with the new Act.
We will, of course, keep you up-to-date with all the changes as the Act nears its final implementation date.
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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