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COMPANIES ACT 2006: IMPLEMENTATION |
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DTI Consultation On 28 February, the Government published its first major consultation on implementation of the new Act. “Companies Act 2006 – A Consultative Document” (February 2007) is available to download from the DTI’s website at http://www.dti.gov.uk/bbf/co-act-2006/index.html. Comments are requested by 31 May 2007 (except for comments on political donations and expenditure, which are requested by 1 May 2007). The current consultation sets out the Government’s proposals on some secondary legislation and transitional arrangements. These are considered below, topic by topic. Overseas companies See CLM: ¶140, ¶168, ¶177 At present, there are two registration regimes governing overseas companies which operate in the UK: the “branch” regime and the “place of business” regime. In recognition of the confusion this causes, the new Companies Act allows the Government to standardise the registration regime by regulations. The Government has announced that it intends to base the new regime on the existing concept of “branch” only. This means that companies which operate a place of business in the UK, but not a branch, would no longer be required to register with Companies House. The new regime would apply to branches of companies from other EU member states; the Government is considering whether the same or different registration arrangements should apply to non-EU companies who carry on business in the UK. The Government has also proposed some changes to when an overseas company would have to register a mortgage or charge over its UK property. The proposal is that registration of specified mortgage and charges would only be required if the overseas company were registered with Companies House; it would not apply if the company were not required to register or failed to do so. This would do away with the “Slavenburg” index (an unofficial register of mortgages and charges over unregistered overseas companies maintained by Companies House). The sanctions for non-registration would be slightly different too. If the mortgage or charge related to the UK property of a registered overseas company, it would be invalid if not registered within 21 days of creation (i.e. the same sanction that would apply to the non-registration of a mortgage or charge by a UK company). However, only a fine would apply if the company had not yet registered as an overseas company and failed to register the charge when it registered its presence or if the failure related to property which had been brought into the UK after the mortgage or charge was created. Finally, the Government has made some proposals regarding the disclosures which an overseas company will have to make on its stationery and signs. The proposal is that non-EU overseas companies will be required to disclose its name and registration details in its business letters and order forms, whether the document is in hard copy or electronic or any other form, and also in any .uk websites. Company names See CLM: ¶248, ¶254 The new Companies Act allows the Government to pass regulations on what letters, symbols etc. may be used in a company name and any prohibited words or expressions. The Government has published a set of uncontroversial proposals which: » list a comprehensive set of acceptable characters and symbols; » largely replicate the current list of prohibited words or expressions; and » limit the length of a company name to 160 characters. Trading disclosures See CLM: ¶259, ¶585, ¶7750, ¶8229, ¶8468 Companies are required to publicise certain information about themselves so that members of the general public can easily identify which company they are dealing with. The new Companies Act does not include the detail of required disclosures. Instead, this will be set out in regulations. The rules have already been expanded recently to require companies to make these disclosures on websites and order forms as well as letters and invoices (see Company Law Memo 2006 Newsletter Issue 8), and the Government plans to expand the requirements further by requiring a company’s name to appear on all documents and communications, whatever form they are in. Having one rule that applies to all documents should make it easier for companies to comply. Articles of association See CLM: ¶435+ Following their consultation on the draft model articles for private companies limited by shares and public companies, the Government has issued new drafts for these types of company. It has also published for the first time draft model articles for private companies limited by guarantee, which closely follow those for private companies limited by shares. The Government has confirmed that model articles will only be specified for these three types of company; other types, such as unlimited companies, will be expected to produce bespoke articles. The type of model articles that will apply to a company will depend upon its type at formation. Therefore, if a private company limited by shares re-registers as a public company, it will have to make any relevant alterations to its articles to reflect its new status. As with Table A, the new model articles for both types of private limited company are intended to be “default” articles, which could work in their own right but will often be tailored by individual companies. The Government acknowledges that public companies are far more likely to have specifically drafted articles, and therefore sees their new model articles being used as more of a drafting tool rather than a complete template. The model does not seek to satisfy the requirements or best practice for listed companies. The Government intends to publish non-statutory guidance on using the different sets of model articles in due course. Several changes have been made to the new draft model articles for private companies limited by shares and public companies. The main change from previous drafts is that the model articles for private companies now include provisions relating to shareholder decision making. Unfortunately, this means that many of the references to specific regulations of the previous drafts given in Company Law Memo 2007 have been superseded. A destination table for the draft new model articles for private companies limited by shares and public companies is available on the FL Memo newsletter homepage, so subscribers who are interested in the specific provisions can update their references and follow future changes (follow the link to “Draft Model Articles Destination Table”). As far as the timetable for bringing these articles into force is concerned, the Government intends to pass the necessary regulations in autumn 2007 to come into effect from October 2008. This is when the provisions enabling companies to be formed under the new Act will be brought into force. Any companies which have been formed before October 2008 will continue to be governed by their own specific articles or the applicable Table A, unless they change their articles. Company formations See CLM: ¶517+ The new Act sets out a completely new procedure for company formations. However, the some of the content of the various documents that would have to be filed at Companies House was left to regulations. The Government has now announced that it proposes that each of the memorandum, statement of capital and initial shareholdings and statement of guarantee will have to contain the individual names of the subscribers. The subscribers will each have to authenticate the memorandum, but there will be no need for a witness (Companies House will be consulting on authentication rules in due course). An address will have to be provided for each subscriber. This could be a service address, but not a PO Box. Any subscriber who is a UK company will have to provide its registered office address. Public company share capital See CLM: ¶703, ¶715, ¶1325 The Companies Act 2006 requires a public company to have a share capital of at least £50,000, or the equivalent in euros (but not a combination of the two). The Government has announced that it will not be exercising its power in the Act to change this amount. It will be passing regulations to prescribe the amount in euros that is to be treated as equivalent to £50,000. This will only be revisited when currency fluctuations result in it differing significantly from £50,000. The new Act also introduces a new procedure for the redenomination of shares. If a public company redenominates its shares out of sterling, currency fluctuations could result in its share capital falling below £50,000. Normally, this would require it to re-register as a private company. The Government proposes that currency fluctuations resulting in a change in the sterling value of a public company’s share capital should be ignored except for when the court sanctions a reduction of capital or the company redenominates its shares. In those two circumstances, a theoretical conversion of the company’s share capital would take place to see whether the company still satisfies the authorised minimum. If not, the company would be subject to an expedited procedure for re-registering as a private company. Share issues and allotments See CLM: ¶1087 Under the Companies Act 2006, new forms will have to be filed at Companies House following an allotment of shares: the statement of capital and a new return of allotment. The statement of capital will have to contain information about the particular rights of the shares that have been allotted. The Government has announced that these will be the right to vote, participate in dividends and receive a return of capital in a winding up. If the statement is made in connection with an allotment of redeemable shares and the directors are authorised to set the terms and manner of redemption, it will also have to set out those terms. The Government has also announced the information which will have to be set out in the return of allotment. Companies will no longer have to provide the names and addresses of the allottees nor, if the allotment is for non-cash consideration, will they have to supply a copy of the contract or particulars of the contract if it is not in writing. Instead, they will have to provide details of any non-cash consideration on the return. Reduction of capital See CLM: ¶1469 The new Act contains a new reduction of capital procedure which does not require the approval of the court. The Government has announced that it proposes to restrict the availability of reserves created by a reduction under the new procedure. This is to protect creditors, whose consent would not be required for the reduction and for whom the company would not have to provide security, unlike in the current court-approved procedure. The restriction is that such reserves will not be distributable. Instead, they will be treated as realised profit which, in accordance with GAAP, may be offset against the company’s realised losses for the purposes of calculating whether the company may pay a dividend. Directors See CLM: ¶2242 The new Companies Act will require every company to have at least one director who is an individual. The Government is considering allowing a grace period after the commencement of this requirement (in October 2008) to allow companies which do not comply to make a suitable appointment. Residential addresses See CLM: ¶2250, ¶3896, ¶3899, ¶3918+, ¶4064 The new Companies Act will not require directors’ residential addresses to appear on the public record at Companies House or in the company’s statutory books. Instead, an address for service will have to be provided for general communication. Although directors’ home addresses will have to be filed at Companies House, they will be “protected”. This means that they will only be made available to public authorities (including enforcement bodies) and credit reference agencies. The Government has issued a list of designated public authorities that will have access to this information, and proposes to restrict their use of it to circumstances falling within their “public function”. It is proposed that credit reference agencies will only be able to use the information to process applications for credit and to carry out their money laundering checks. A further level of protection will be available where a company is likely to be subject to violence or intimidation or the director (or prospective director) is engaged by the security and intelligence services or the police. Such a (prospective) director will be able to apply to Companies House for his residential address not to be disclosed to credit reference agencies either. Significantly for directors currently in office, if a confidentiality order is already in place, this protection will automatically apply. As for directors’ residential addresses which are already on the register, Companies House has indicated that it will be able to remove them (on application) if they were filed on or after 1 January 2003. Before that date, the records are held on microfiche and are too difficult to remove without damaging the rest of the record. There is no requirement for shareholders’ residential addresses to be on the public record. However, an address is required and many shareholders enter their home addresses as they do not have a separate service address. The new Companies Act will still require every shareholder’s name and address to appear on the register of shareholders. The information required on the annual return, however, is to be set out in regulations. The Government proposes that only public companies with shares traded on an EU regulated market will have to disclose its shareholders’ addresses, and even then it will only apply to shareholders with 5% or more of the company’s shares. In any event, these shareholders are likely to have service addresses they can use instead of their residential addresses, minimising the risk of misuse of their personal information. Where a shareholder’s address is already on the public register, he will be able to apply for it to be removed on the grounds that the company is likely to be subject to violence or intimidation, or that the individual works for the security and intelligence services. Only addresses filed on or after 1 January 2003 will be able to be removed. Applications to remove other addresses, for example, those for companies’ registered offices or secured lenders, will be able to be made on the same grounds (provided they were filed on or after 1 January 2003). Political donations See CLM: ¶3204 To accompany the implementation of the provisions of the new Act relating to political donations, the Government proposes to make regulations which will except certain types of company from the restrictions, e.g. media companies, which prepare, publish and disseminate material about political and current affairs. Separate regulations will set the rate of interest payable on unauthorised donations or payments at 5% per annum. Consultation on these regulations is due to close on the earlier date of 1 May 2007 because these provisions are scheduled to come into force in October 2007. The Government proposes that existing resolutions allowing donations to be made when the relevant provisions come into force will still be valid. Since donations to independent election candidates will also be caught under the new provisions, the Government is considering introducing transitional arrangements to defer commencement as regards these candidates to enable companies to pass new or wider resolutions. Consultation on both of these transitional arrangements is due to close on 1 May 2007 as well. Extraordinary resolutions See CLM: ¶3544, ¶8087, ¶8216, ¶8438, ¶8515, ¶8615 The new Companies Act does not specify how references to extraordinary resolutions in companies’ articles and other documents should be interpreted after the new provisions relating to resolutions and meetings come into force in October 2007. The Government is inviting views on whether this question should be left to the courts or dealt with in transitional arrangements. Company records See CLM: ¶3889, ¶3928, ¶3930, ¶3936, ¶3976, ¶3977, ¶3993, ¶3994, ¶4006, ¶4007, ¶4019 The Government has proposed that the shorter retention period in the new Act for information in the register of shareholders should apply immediately from commencement of the relevant provision in October 2008. This would enable companies to dispose of any records over 10 years old straight away, instead of having to wait for 20 years to expire. Companies are required to have certain records available for inspection at a certain place and at specified times. In addition to keeping these documents at the registered office, the Government proposes to allow companies to keep them in one other location. This means that small companies which do not necessarily have a registered office that can be open to shareholders and others for documents to be inspected as required will still be able to keep their records in another place, e.g. at their solicitors’ offices. The alternative venue will have to be stated in the annual return, annual accounts and reports, any website and on request. In addition, the Government proposes that private companies should only be obliged to make their records available for inspection for at least 2 hours between 9am and 5pm on business days during the notice period for a general meeting. At other times, the records will have to be made available for at least 2 hours on request. Public companies will, however, still have to make their records available for at least 2 hours between 9am and 5pm on business days. Companies House See CLM: ¶4027+, ¶4030, ¶4048, ¶4049, ¶4076, ¶4080 Companies House will be able to annotate the register under the new Act. During the transitional phase, the Government has stated that this power will be used to clarify any discrepancies which arise as a result of different filing requirements under the old and new regimes. Once the Act is in force, the Government has proposed that Companies House should be able to exercise this power to explain any material on the register which may be confusing or misleading to a person searching it. Companies House will also have the power to remove information from the register. The current proposals for the type of material that will be able to be removed are restricted to material which could be used to commit fraud (e.g. in the case of a hijacked company, where fake documents are filed by criminals who then use the company to commit fraud). Such material will be able to be removed from the register on the application of a person affected by the document. Provisions enabling regulations to be made allowing certain documents to be filed in another language, with English translations, are already in force. The Government proposes to allow overseas companies who have a presence in the UK to file their memoranda and articles in a foreign language with a translation as well. Certain company documents have to be advertised in the Gazette at the moment. The new Act will enable regulations to be made giving Companies House the power to require that this information is published in an alternative manner. However, the Government has stated that it does not propose to use this power at this stage. Company secretaries See CLM: ¶4129 Many private companies are likely to take advantage of the removal of the requirement to have a company secretary under the new Act. In order to prevent confusion arising over the status and powers of former private company secretaries, the Government is proposing to put transitional arrangements in place to clarify the position where a private company has decided not to have a secretary, but has not filed Form 288b to remove him from the register at Companies House. Company accounts See CLM: ¶4226, ¶4303, ¶4369 Under the new Act, the detailed accounting and reporting requirements will be set out in regulations. The Government has announced its proposals regarding these regulations. In line with its “think small first” approach, it proposes introducing a single set of regulations for small companies. It is considering whether the same regulations should also apply to those small companies which are parent companies and which choose to prepare group accounts. For medium-sized and large companies, the Government has yet to decide between one set of regulations for them all, or taking an alternative approach. The Government has confirmed, however, that in most respects, the new regulations will not change the substance of the current requirements. However, it does propose to make some policy changes in the following areas: » further reporting requirements relating to the way in which companies take pay and employment conditions elsewhere in its group into account in deciding directors’ remuneration; » a new requirement for small and medium-sized companies to disclose turnover in their abbreviated accounts; and » the threshold for the disclosure of charitable and political donations to be raised from £200 to £2,000. For the first time in legislation, the new Act sets out how auditors may limit their liability for their audit of company accounts. The Government has announced that it does not intend to prescribe or proscribe the terms of liability limitation agreements unless, against its expectations, the freedom for companies and auditors to choose the terms themselves results in adverse effects, for example on competition. However, such agreements will have to be disclosed and the Government will be making regulations that will specify the content and method of disclosure. It proposes that the information to be disclosed will be the principal terms of the agreement and the date of the shareholders’ resolution which approved the agreement, or waived the need for approval. The method of disclosure will be by means of a note to the annual accounts. Derivative claims See CLM: ¶7130 The Government proposes to allow shareholders who bring a derivative claim on or after the commencement date for the relevant provisions (October 2007) to use the new procedure, whether or not the actions or omissions complained of took place before that date. |
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The Companies Act 2006 received Royal Assent on 8 November 2006. The final text of the Act, explanatory notes and tables of destinations and origins are now freely available to download at: http://www.opsi.gov.uk/acts/acts2006a.htm The Government has announced its timetable for implementing the Companies Act 2006. 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. For more information on provisions of the Act which are already in force, and which are due to come into force on 6 April 2007, see Company Law Memo 2006 Issue 9. Changes to the City Code as a result of the coming into force of Part 28 of the Companies Act 2006 on Takeovers are discussed earlier in this Newsletter, in News. Also see Company Law Memo 2006 Issue 9 for a summary of ICSA’s guidance on the new company communication provisions. |
