Companies Act 2006: Company Law Memo 2007 Newsletter Issue 5 (July 2007)

Company Law Memo Newsletter Issue 5 (July 2007)

COMPANIES ACT 2006: IMPLEMENTATION

The final 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

The Act received Royal Assent on 8 November 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 and further announcements are made. The implementation timetable is now up to date to the Third Commencement Order (see below).

Third Commencement Order

The Companies Act 2006 (Commencement No. 3, Consequential Amendments, Transitional Provisions and Savings) Order 2007 was laid before Parliament on 9 July.

This Third Commencement Order mainly deals with the provisions coming into force on 1 October 2007 including parts relating to directors, derivative claims, resolutions and meetings and the business review. It also sets out transitional provisions and consequential repeals and amendments.

1. The first draft of the Order (see Issue 4) was withdrawn on 5 July because a number of drafting errors had been identified.

2. The Order brings the following provisions into force on 15 December 2007 so far as necessary for the purposes of any regulations made before that date to implement the EC Directive on cross-border mergers (EC Directive 2005/56):

» registrar's requirements as to form, authentication and manner of delivery (s 1068);

» hard copy and electronic form and related expressions (s 1168); and

» extension of Companies Acts to Northern Ireland (s 1284).

Directors

Most of Part 10 on directors, including the provisions relating to the directors’ general duties, will come into force on 1 October 2007. The relevant sections are:

» companies required to have directors (s 154);

» appointment of directors of public company to be voted individually (s 160);

» validity of acts of directors (s 161);

» removal of directors (ss 168, 169);

» general duties of directors (ss 170-174, 178-181);

» transactions with directors requiring approval of members (ss 188-226);

» directors’ service contracts (ss 227-230);

» contract with sole member who is also a director (s 231);

» directors’ liabilities (ss 232-239); and

» supplementary provisions (ss 247-259).

Note that the following provisions are not included within the commencement order; they are expected to come into force in October 2008:

» companies required to have at least one director who is a natural person (ss 155, 156);

» minimum age for appointment as director (s 157);

» register of directors etc (ss 162-165, 167)

» duty to avoid conflict of interests (s 175);

» duty not to accept benefits from third parties (s 176);

» duty to declare interest in proposed transaction or arrangement (s 177);

» declaration of interest in existing transaction or arrangement (ss 182-187); and

» directors’ residential addresses protection from disclosure (ss 240-246).

Derivative claims

Part 11 on derivative claims will also come into force on 1 October 2007 (ss 260-269). These provisions contain the new derivative claim procedure.

As set out in the Government’s response to consultation (see Issue 4), there are transitional provisions which provide that (para 20 Sch 3):

» the new provisions will not apply (and the common law provisions only will continue to apply) where the claimant has applied for permission to continue the claim before 1 October 2007; and

» if, or to the extent that, the claim arises from acts or omissions that occurred before 1 October 2007, the court must exercise its powers under those sections so as to secure that the claim is allowed to proceed as a derivative claim only if, or to the extent that, it would have been allowed to proceed under the common law.

Shareholders’ resolutions and meetings

Most of Part 13 on resolutions and meetings will come into force on 1 October 2007, together with other miscellaneous provisions on the same subject. The particular sections are:

» resolutions and agreements affecting a company’s constitution to be filed at Companies House (ss 29, 30);

» inspection of register of members (ss 116-119);

» exercise of members’ rights (ss 145-153);

» general provisions about resolutions (ss 281-287);

» written resolutions (ss 288-300);

» resolutions at meetings (ss 301-307, 310-332, 334, 335, except s 327(2)(c) and s 330(6)(c));

» public companies: additional requirements for AGMs (ss 336-340);

» additional requirements for quoted companies (ss 341-354);

» records of resolutions and meetings (ss 355-359);

» supplementary resolutions and meetings provisions (ss 360-361); and

» protection of members against unfair prejudice (ss 994-999).

Note that Order does not bring into force the sub-sections dealing with proxy deadlines when a poll vote is held within 48 hours of it being demanded (ss 327(2)(c), 330(6)(c)). The sub-sections were included in the first draft of the Order but omitted from the second draft. ICSA has reported that this is because the sections had been criticised for potentially making the appointment of proxies and the taking of polls unnecessarily complex. It is not known whether the sections have been shelved completely or simply delayed.

Shareholders’ resolutions and meetings: transitional provisions

The Order contains various transitional provisions including that:

» the new provisions apply to resolutions of which notice is given on or after 1 October 2007, or that are proposed at a meeting of which notice is given on or after 1 October 2007 (other than one which has been requisitioned under the 1985 Act) (para 22 Sch 3);

» the new written resolution procedure may not be used to revoke, vary or renew the authority of the directors to allot securities under s 80A CA 1985 (para 13 Sch 1);

» further procedural requirements will apply to the written resolution procedure when it is used to (para 13 Sch 1):

- disapply pre-emption rights under s 95(2) CA 1985;

- whitewash financial assistance under s 155 CA 1985;

- authorise an own share purchase, or vary, revoke or renew an authority under s 164 CA 1985; or

- approve payment out of capital to finance an own share purchase or share redemption under s 173 CA 1985.

» any reference to an extraordinary resolution in a company’s memorandum and articles or a contract will continue to have effect and be construed in accordance with s 378 CA 1985 (para 23 Sch 3);

» a private company will continue to have to hold AGMs if its memorandum or articles expressly require, but not if they only specify that the directors are to retire at an AGM (para 32 Sch 3); and

» an existing public company will have to follow s 366 CA 1985 to determine the date of its first AGM after 30 September 2007. Section 336 CA 2006 will determine the date of subsequent AGMs (para 35 Sch 3), however, this section has been amended so that a public company must hold its AGM within 7 months of its accounting reference date, rather than within 6 months as in the Act (para 15 Sch 1).

Business review

The provision requiring medium-sized and large companies to prepare a business review will come into force on 1 October 2007 (s 417). It will apply to directors’ reports for financial years beginning on or after 1 October 2007. The 1985 Act provisions will apply to directors’ reports for financial years beginning before that date (para 43 Sch 3).

Large companies will also welcome the statement by Stephen Timms, the new minister for enterprise and small business, who replaced Margaret Hodge. He has been reported as confirming that there will be no new corporate social responsibility legislation in the foreseeable future. This will be a disappointment to the CSR movement which had been promised a second bite of the cherry when the Companies Act 2006 was implemented in return for accepting last minute watered down CSR amendments to the business review sections of the Bill just before it was enacted in November 2006.

Miscellaneous provisions

The other following provisions will also be coming into force on 1 October 2007:

» control of political donations and expenditure (ss 362-379), except the provisions which relate to independent election candidates which will come into force on 1 October 2008;

» appointment of auditors of private companies (ss 485-488);

» company investigations: amendments (ss 1035-1039, 1124, Sch 3); and

» general supplementary provisions relating to offences (ss 1121-1123, 1125-1133).

Note that the control of political donations and expenditure provisions come into force on 1 November 2007 in Northern Ireland, instead of 1 October 2007.

Consultation on draft regulations

The Government has published a number of draft regulations, which have been prepared following the responses to February’s consultation (see Issue 1). The draft regulations cover a number of areas, most notably company accounts. There are also draft regulations dealing with Companies House, auditors’ remuneration and limitation of liability, the protection of directors’ residential addresses, the inspection of company records, the information a company has to display about itself, the contents of the annual return and the details of charges that need to be provided to Companies House.

The Government is inviting comments on these draft regulations by 30 September. Separately, Companies House has also issued consultation documents on its rules and late filing penalties. Any responses to this consultation should be submitted to Companies House by 12 October.

The draft regulations are freely available from the new “Regulations - draft” page of the Companies Act 2006 section of BERR’s website (http://www.dti.gov.uk/bbf/co-act-2006/index.html). They will be considered in more detail in the next issue of Company Law Memo 2007 Newsletter.