Articles
Companies Act 2006
The rules regarding private companies have been simplified to an extent pursuant to the Government’s “think small first” approach. However, the impact on quoted companies will be significant as the Act is designed to comply with EU Directives such as the Transparency Directive whose aim is to improve corporate governance, to enhance transparency in the EU capital markets as well as improve investor protection and market efficiency.
Timetable For Implementation
The Companies Act 2006 received Royal Assent on 8 November 2006. The Act (in 47 Parts with 1300 sections and 16 Schedules) is the most voluminous piece of legislation ever passed by the British Parliament.
The Government is due to begin a consultative process in February 2007 to deal with the implementing regulations and other statutory instruments required giving full effect to the new statute. Guidelines are also awaited from the Government on selected, important areas of change. In addition, the Government plans to publish a destinations and derivations table.
The Key Changes/Benefits Of The New Act: A Summary
- New Electronic filing & disclosure norms for private and public companies.
- Disclosure of major shareholdings regulated by the Financial Services Authority.
- Takeover Panel given statutory authority.
- Greater use of electronic communications.
- Deregulation of Private Companies:
- No longer required to have a company secretary.
- Financial assistance for acquisition of own shares permitted.
- Reduction of share capital without court approval.
- Share capital requirements simplified.
- Business can be conducted more easily via written resolution.
- AGMs no longer need to be held.
- Directors’ duties codified.
- New procedure for bringing shareholder derivative actions.
- Companies required to announce their issued share capital and voting rights.
- Code for accounting and reporting for small companies.
- New Website provisions.
- Enhanced Proxy rights.
- Procedure for transactions requiring shareholder approval streamlined.
- Rules on liability for reports to the market (including the business review) clarified.
- Provisions for indemnifying the directors of corporate trustees of occupational pension schemes.
- Administrative changes e.g. rules for protecting the privacy of directors’ home addresses.
Commentary
In Force Now (As At January 2007)
- The Act’s provisions on company communications to shareholders and others, including electronic communications have been “fast-tracked”. As a result, companies must immediately implement the new regime for communications, particularly electronic communication, between the company and its shareholders as well as holders of debt securities.
- Provisions regarding corporate takeovers and those empowering the Financial Services Authority (FSA) to issue new Disclosure and Transparency Rules now enable the FSA to regulate the disclosure of major share holdings by Official List, AIM and Plus Market companies.
- All companies should have arrangements in place to comply with new requirements to disclose its registered name, number and certain specified particulars on any company website and order forms.
- The Takeover Panel has been given Statutory Authority with attendant new takeover rules.
Important Provisions To Be In Force By October 2008
Financial Assistance/Share Capital: The current statutory prohibition on financial assistance will be removed for private companies. In addition, the rules for reduction of share capital will be simplified by the introduction of a new solvency statement procedure and court approval will no longer be required.
Directors: The duties of directors have now been codified into a list of 7 statutory duties. Whilst the Government has strongly advocated codification as a method of clarifying the law it is likely that directors will face a larger administrative burden and may now have to adapt the way in which they take business decisions.
Derivative Actions: Shareholders wishing to sue the directors in the name of the company must now follow a statutory derivative action procedure which first requires the obtaining of leave from the court to sue.
Constitutional Documents: The articles will become the key constitutional document and the memorandum of association (to be in a prescribed short form) will be of historical significance only and unalterable.
Rules on Political Donations: the law has been clarified and the Act expressly provides that a trade union is not a political organisation for the purposes of the regime (which requires prior authorisation from shareholders for a company to make a political donation or to incur political expenditure).
Audits: There will be changes in relation to auditing practices (e.g. liability limitation agreements may be entered into and approved by shareholders) as well as additional audit quality provisions.
The details set out in this article are for general guidance only.
Please contact Graham Young or Julian Goulding for further information and/or detailed legal advice on any aspects of the new law.