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COMPANIES ACT 2006: IMPLEMENTATION |
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The text of the Companies Act 2006, explanatory notes and tables of destinations and origins are now freely available to download at: http://www.opsi.gov.uk/acts/acts2006a.htm. To see when specific sections of the Act will or have come into force, check the implementation timetable on the FL Memo Ltd newsletter homepage (follow the link to “Companies Act 2006 implementation timetable”). This document will be updated as new secondary legislation is passed and further announcements are made. The implementation timetable is now up to date to the Sixth Commencement Order. |
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April 2008 implementation The Fifth Commencement Order (SI 2007/3495) brings approximately one third of the new Companies Act into force on 6 April 2008. The new provisions and changes to the law are discussed below. Most of the secondary legislation implemented at the same time is now in its final form, so the relevant references are given below. However, some are still in draft at the time of writing, in which case the latest draft is referred to. The Sixth Commencement Order (SI 2008/674) also brings a limited number of provisions into force on 1 April 2008, relating to charities. Shares The provisions requiring all public companies to have a minimum share capital and obtain a trading certificate to that effect before doing business come into force on 6 April. The new provisions largely restate their CA 1985 equivalents and the required minimum remains £50,000. Existing trading certificates are still valid once the changes are in force (para 26 Sch 4 SI 2007/3495). The new law allows public companies to have the minimum share capital in euros instead of sterling, so some public companies may wish to take advantage of this. The euro equivalent minimum figure is set at €65,600 by regulations (reg 2 SI 2008/729). The other change introduced by the new Act on this topic is that the application for a trading certificate needs to be supported by a statement of compliance rather than the more onerous statutory declaration. However, Companies House has not yet issued a new form. Transitional arrangements allow companies with shares denominated in euros to amend the form accordingly by hand (para 28 Sch 4 SI 2007/3495). Provisions in force: ss 761-767 CA 2006 See CLM: ¶510+, ¶720 The prohibition on private companies offering shares to the public is set out in the new Act. Although some of these provisions are restated, there are important changes to how the restrictions work. For example, instead of being fined for breaching the restriction, companies can be compelled to re-register as a public company or be wound up. Provisions in force: ss 755-760 CA 2006 See CLM: ¶986+ Other provisions dealing with shares are in force, restating the old law: » distributions: provisions in force: ss 829-853 CA 2006; see CLM: ¶1013, ¶1025, ¶1029, ¶1053, ¶1603+, ¶1730; and » transfers and transmissions: provisions in force: ss 544, 768-790 CA 2006; see CLM: ¶1825+. Regulations dealing with the transmission of shares have not yet been published at the time of writing (s 785 CA 2006, ¶1964). Company management and decision making To fit in with the relaxation of company secretary requirements (see below), the provision of the new Act dealing with the execution of documents is brought into force. It gives all companies an additional method of executing contracts and deeds: by the signature of a director and a witness. This is primarily to allow private companies that choose not to have a secretary and only have one director to be able to execute documents. This change is the subject of this Issue’s Focus on… Provision in force: s 44 CA 2006 See CLM: ¶1907, ¶1909, ¶3486, ¶5743, ¶5744 Some company registers are also affected by this implementation phase: » entries in the register of shareholders only have to be retained for 10 years after the person in question ceased to be a shareholder. This will allow companies to clean up their registers after 6 April 2008. However, copies of any details removed under this power must be kept until 6 April 2018 or 20 years after the shareholder ceased to be a member, whichever expires first (para 2 Sch 4 SI 2007/3495 as amended by para 6 Sch 3 SI 2008/674). Logically, the limitation period for claims arising out of entries in the register is also reduced to 10 years. This new period applies to causes of action arising on or after 6 April 2008 (para 3 Sch 4 SI 2007/3495). Where a claim arose before then, the applicable limitation period is either 20 years from when it arose or 10 years from 6 April 2008, whichever expires first. Provisions in force: ss 121, 128 CA 2006; see CLM: ¶3922, ¶3936; » the new procedure for requesting to inspect or copy a public company’s register of interests in shares applies from 6 April 2008. Provisions in force: ss 811(4), 812, 814 CA 2006; see CLM ¶3994; and » the provisions dealing with the register of debenture holders apply from 6 April 2008, to coincide with the rest of the provisions dealing with debentures being brought into force. The regulations dealing with where this register must be kept are not yet in force, so transitional provisions provide an alternative to the registered office in the meantime (para 21 Sch 4 SI 2007/3495). As with the register of shareholders, the limitation period for actions arising out of entries in the register is reduced from 20 to 10 years (s 748 CA 2006). The new period applies to causes of action arising on or after 6 April 2008 (para 23 Sch 4 SI 2007/3495). Where the cause of action arose before that date, the applicable limitation period is either 10 years from 6 April 2008 or 20 years from when the cause of action arose, whichever expires first. Provisions in force: ss 743-748 CA 2006; see CLM ¶4006+. The new fees for inspection and copying the register of debenture holders are also in force from 6 April 2008 (Companies (Fees for Inspection and Copying of Company Records) (No. 2) Regulations 2008, SI 2007/3535; see CLM ¶4019). Company secretary The company secretary provisions are brought into force as part of this implementation phase, the only exception being the provisions dealing with the register of secretaries. These will come into force on 1 October 2009 along with the provisions on the other main registers. The new company secretary provisions are significant as far as private companies are concerned. They bring in a much-discussed freedom for private companies to choose whether or not to have a secretary. Many private companies find it extremely useful to have a dedicated secretary and will not want to lose the office. However, the role can be superfluous for very small private companies in particular. These companies are not large enough to need a person to carry out the administrative duties of a secretary and so they often appoint their accountants or solicitors to the office, increasing their costs unnecessarily. It is these companies that will want to take advantage of this new ability to choose. However, they must check their articles first: a requirement to have a secretary in a private company’s articles must still be followed. This only applies to actual requirements. If, for example, a company’s articles only refer to a secretary in terms of his functions, appointment or removal, the articles do not require the company to appoint a secretary (para 4 Sch 4 SI 2007/3495). The usual formalities will have to be followed when removing the secretary from office (see CLM ¶4160). There are no special requirements for noting the absence of a secretary in the company’s internal register – a company is only required to record the details of its secretary if it has one (para 78 Sch 1 draft Companies Act 2006 (Consequential Amendments etc) Order 2008). Private companies that choose not to have a secretary must still comply with filing and record-keeping requirements. Transitional arrangements in place for the time being mean that only a director of the company can step into the secretary’s shoes and perform his functions (s 272 CA 2006 as amended by para 3 Sch 1 SI 2007/2495). Once this arrangement has been lifted, the board will also be able to nominate any other person to carry out the relevant tasks. Companies House has not yet updated its forms to reflect the new law. Therefore, when a private company without a secretary completes its annual return, it can simply ignore the requirement to provide details of its secretary (para 80 Sch 1 draft Companies Act 2006 (Consequential Amendments etc) Order 2008). The same applies when completing Form 10 where a private company chooses not to have a secretary before it is incorporated (para 54 Sch 1 draft Companies Act 2006 (Consequential Amendments etc) Order 2008). As a result of this implementation, the prohibition on sole directors also acting as company secretary has been repealed, and the requirements for executing documents have been changed (see above). Provisions in force: ss 270-274, 280 CA 2006 See CLM: ¶3461, ¶4115+ Company accounts The bulk of this implementation phase concerns company accounts and audit. The provisions themselves do not mark any significant change in the way in which company accounts have to be prepared because most of the new provisions restate those in CA 1985. Any specific differences are highlighted in the relevant paragraphs in CLM. Most of the accounts and audit provisions apply to accounts and reports prepared in respect of financial years beginning on or after 6 April 2008. Therefore, most companies will still have at least one set of accounts and reports to prepare under the CA 1985 provisions. Similarly, most of the provisions dealing with the appointment of auditors relate to auditors appointed for financial years beginning on or after this date. However, there are some notable exceptions relating to auditors. The provisions dealing with (paras 12-17 Sch 4 SI 2007/3495): » auditors’ rights relating to shareholder resolutions and meetings (s 502 CA 2006) apply where the auditor in question was appointed on or after 6 April 2008 (whether or not in relation to a financial year beginning on or after that date); » resolutions to remove auditors (ss 510-513 CA 2006) apply where notice of the relevant resolution was given on or after this date; » auditors’ resignations (ss 516-518 CA 2006) apply to resignations occurring on or after this date; » auditors’ statements on leaving office (ss 519-525 CA 2006) apply where the auditor ceased to hold office on or after this date; and » vacancies in the office (s 526 CA 2006) apply to vacancies occurring on or after this date. See the online updates for details of the affected paragraphs in CLM. Provisions in force: » accounts and reports: ss 380-416, 418-462, 464-474 CA 2006; see CLM ¶4185+ » audit: ss 475-484, 489-539, 1209-1241, 1245-1264, Schs 10, 11, 13, 14CA 2006; see CLM ¶4290+ » dormant company definition: s 1169 CA 2006; see CLM ¶4407+ Secondary legislation relating to accounts and reports Although there are few changes to the substance of the law, there are significant changes to the sources of the law on this topic. Whereas the accounting provisions of CA 1985 were supplemented by further detail set out in schedules to the Act, the new statutory provisions work with secondary legislation. CLM Newsletter has kept readers up to date on the various drafts of these regulations and orders in the run-up to implementation. The two main sets of regulations deal with the form and content of companies’ accounts and reports, depending on their size. The idea behind separating out the rules for small companies and groups and large and medium-sized companies and groups is to make it easier for smaller companies to find out what is required of them. The regulations largely restate the CA 1985 requirements. They were summarised in CLM Newsletter 2007 Issue 6. There have been no significant changes between the drafts and the finalised versions of the regulations. (Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, SI 2008/410; Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008, SI 2008/409.) The Companies Act 2006 (Amendment) (Accounts and Reports) Regulations 2008 (SI 2008/393) make certain amendments to the accounting provisions in the new Act in order to implement EC law (EC Directive 2006/46 amending the Fourth and Seventh Company Law Directives on company accounts). These changes are noted where relevant in CLM. In summary, the changes: » increase the thresholds for qualifying as a small or medium-sized company (see CLM ¶4363, ¶4372, ¶4388, ¶9467); » require off-balance sheet arrangements to be disclosed in the notes to the accounts (see CLM ¶4226); and » make some other technical changes to the new Companies Act provisions, such as making sure that small and medium-sized companies can still benefit from directors’ report exemptions even if they are members of ineligible groups (which was not the case with the original wording of the Act) (see CLM ¶4247+). Companies whose accounts are audited are still able to send summary financial statements to their shareholders instead of the full reports and accounts, if their auditor approves the summary (see CLM ¶4265). The Companies (Summary Financial Statement) Regulations 2008 (SI 2008/374) set out the circumstances in which companies are permitted to use summary financial statements, their contents and who should receive them. The finalised version is substantially the same as the latest draft, with some rewording for clarification and to take account of the two separate sets of accounts regulations for small and for large and medium-sized companies. The deadlines for filing accounts at Companies House are reduced. For accounts prepared in relation to financial years starting on or after 6 April 2008, the deadlines are (see CLM ¶4279): » 6 months from the end of the relevant accounting period for public companies; and » 9 months from the end of the period for private companies. The deadline for public companies holding their AGMs is brought into line with this filing deadline by removing the transitional arrangements (para 4 Sch 3 SI 2008/674). This means that public companies’ deadlines for holding AGMs, laying accounts and filing accounts are all the same. See CLM ¶3783 for details of the AGM deadlines and how they apply while the new Act is being implemented. The penalties for filing accounts late at Companies House will increase under the new law to take account of inflation, although this will not occur immediately (see CLM ¶4281). Between 6 April 2008 and 1 February 2009, the penalties will be as follows (Companies (Late Filing Penalties) and Limited Liability Partnerships (Filing Periods and Late Filing Penalties) Regulations 2008, SI 2008/497):
From 1 February 2009, the fines will increase as follows:
If a company fails to file its accounts in two successive financial years starting on or after 6 April 2008, the penalties are doubled. If a company’s accounts, directors’ report or summary financial statement do not comply with the relevant legislation or accounting standards, the company can voluntarily revise them to correct the defects (s 454 CA 2006). The Companies (Revision of Defective Accounts and Reports) Regulations 2008 (SI 2008/373) set out detailed provisions on how companies should do this. In addition, the FRRP can review the accounts of public companies and large private companies (Companies (Defective Accounts and Directors’ Reports) (Authorised Person) and Supervision of Accounts and Reports (Prescribed Body) Order 2008, SI 2008/623) (see CLM ¶4211). The FRRP has the power to require companies to correct defective accounts, and to apply to court for an order to that effect if they refuse to do so. Secondary legislation covers the accounts of special types of businesses: » Charities Act 2006 (Charitable Companies Audit and Group Accounts Provisions) Order 2008 (still in draft at the time of writing). This order takes account of the changes made by the new Companies Act in relation to charities’ accounts (s 1175, Sch 9 CA 2006 remove the special rules relating to auditing these accounts). The result is that small charities’ accounts will have to comply with charity law rather than company law. The Charities (Accounts and Reports) Regulations 2008 (SI 2008/629) deal with the preparation of charities’ accounts and reports. Unlike the other SIs discussed here, these two come into force on 1 April 2008; » Partnership (Accounts) Regulations 2008 (SI 2008/569). These regulations deal with the accounting requirements of certain types of partnership (broadly speaking, those whose members are companies). They implement EC Directive requirements on accounts and audit; » Bank Accounts Directive (Miscellaneous Banks) Regulations 2008 (SI 2008/567). As well as implementing EC law dealing with banks’ and financial institutions’ accounts, they apply certain accounting provisions under the new Act and associated regulations to these accounts; and » Insurance Accounts Directive (Miscellaneous Insurance Undertakings) Regulations 2008 (SI 2008/565). These regulations perform a similar function for insurance companies. Secondary legislation relating to auditors The main set of regulations on the subject of auditors is the Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008 (SI 2008/489) (see CLM ¶4303, ¶4305+). They require companies to disclose auditors’ services (both in relation to audit and non-audit work) as well as any liability limitation agreement entered into with the auditors for that financial year. The original draft was discussed in CLM 2007 Newsletter Issue 6. There are two new additions to finalised regulations when compared to the previous draft. Firstly, there is a new exception to the requirement to disclose for large companies where “other” services are supplied by a distant associate of the auditor and the remuneration for all of those services is below a de minimis amount. Secondly, a new provision allows a liability limitation agreement entered into too late to be included in the notes to the accounts for that financial year to be added to following year’s accounts. The EC Directive on the audit of company accounts (EC Directive 2006/43) is implemented by three statutory instruments (see CLM ¶4290, ¶4345). Most of their provisions come into force on 6 April 2008, although some are reserved until 29 June to come into force along with the relevant provisions of the new Act. The relevant SIs are: » Statutory Auditors and Third Country Auditors Regulations 2007 (SI 2007/3494). These regulations amend the new Companies Act to implement the Directive. The amendments concern the supervision of auditors and recognition of qualifications of foreign auditors; » Independent Supervisor Appointment Order 2007 (SI 2007/3534). This order appoints the Professional Oversight Board of the Financial Reporting Council to supervise the auditing profession in the UK; and » Statutory Auditors (Delegation of Functions etc) Order 2008 (SI 2008/496). This delegates most of the secretary of state’s functions in relation to the supervision of the profession to the Professional Oversight Board. Using its delegated powers to oversee and monitor the system of audit regulation, the Professional Oversight Board has published 3 instruments. They are in still draft form at the time of writing and are due to come into force on 6 April 2008: » Statutory Auditors (Transparency) Instrument 2008, which sets out the requirements for transparency reports by auditors of listed companies; » Statutory Auditors (Registration) Instrument 2008, which deals with the register of statutory auditors; and » Statutory Auditors (Examinations) Instrument 2008, which deals with the examinations that need to be passed to gain professional audit qualifications. Corporate restructuring and development The schemes of arrangement provisions of the new Act are in force from 6 April 2008, largely restating the CA 1985 provisions. The provisions dealing with mergers and divisions of public companies are also in force from the same date. They also restate the old position, but they reclassify the types of mergers and divisions as follows: » Case 1 becomes a “merger by absorption”; » Case 2 becomes a “merger by formation of a new company”; and » Case 3 becomes a “division”. |