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As the year draws to a close, this issue of Company Law Memo 2006 Newsletter looks at developments in 2006 and gives a flavour of what is to come in 2007. |
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This year Parliament has passed 53 new Acts and around 1,500 new regulations (so far!). Within this plethora of new law, there have been several key developments for professionals and company directors and secretaries – some welcome, some not. So, what has 2006 delivered, and what can be expected in 2007? Companies Act 2006 Of course, the most significant new Act was the Companies Act 2006. This finally received Royal Assent at the beginning of November. The Government heralded the reform as “deregulatory”, and expects it to help businesses save £250million a year, including up to £100m for small businesses. Whether companies agree with the Government’s assessment remains to be seen. Much will depend upon the way the Act is implemented and, on this point, we are very much in the dark. The provisions on electronic communications between companies and Companies House will come into force with effect from 1 January 2007, and those on electronic communications by companies to their shareholders later in January. Consultation on implementation of the remainder of the reforms is expected to begin in February 2007 (see this issue). The Government have said that it wants the reforms to come into force by October 2008 at the latest, so an earlier implementation date has not been ruled out. In any case, companies face a year of uncertainty until the numerous regulations are finalised and they learn exactly how the new Act will affect existing companies. Political lobbying and media interest is likely to focus around a few main areas, such as the directors’ narrative reporting requirements. It will be interesting to see whether the various business and pressure groups gain or lose favour when a new minister is installed at the DTI following the inevitable cabinet reshuffle caused by Tony Blair’s expected resignation as Prime Minister. Age Discrimination regulations The Age Discrimination regulations came into force at the beginning of October. Much publicised at the time, in Issue 5 we considered how the regulations would affect the employment of executive directors, from appointment to dismissal. Anecdotal reports show that this piece of legislation did not quite have the effect that Government or campaigners hoped for. Some directors who were close to or already working past their company’s retirement age were dismissed before the regulations came into force, presumably so their employers could avoid exposure to increased liabilities. It is perhaps too early to say how the regulations are operating now they are in force. The feeling was that companies would find it more difficult to amicably “retire” underperforming directors, or those with whom there has been a personality clash. This is because the real reason for the termination of appointment will have to be documented in order to avoid an inference that it was on the grounds of the director’s age. The expected result was either an increase in employment tribunal claims involving directors or a rise in directors’ exit packages, no doubt resulting in more “fat cat director” media stories. We shall have to wait and see whether these predictions are borne out. Takeover Directive The Takeover Directive was a niche piece of legislation, impacting upon public companies, their advisers and the City. In a bumper year for takeover activity, what these stakeholders needed was a smooth and orderly implementation programme. What they got was an awkward two-tier system, one for offers for quoted companies and one for offers for unquoted companies. The reason was that the Government had to implement the directive by 20 May 2006 but the implementation provisions were in the new Companies Act which was still a Bill before the House of Lords at that time. The solution was the Takeovers Directive (Interim Implementation) Regulations 2006 which implemented the Directive in respect of offers for quoted companies only. Even now that the Companies Act 2006 has received Royal Assent, those involved in the takeover market are waiting for the relevant provisions of the Act to come into force so that the rules governing takeover activity in the UK are harmonised. The Government has finally indicated that this will happen on 6 April 2007 (see this issue), almost a year after the Directive was implemented. TUPE regulations After a long delay, the new TUPE regulations finally came into force in April and brought some much needed reform to this area of law, which protects employees from dismissal when their employer transfers its business. TUPE invariably causes concern in business sales because the buyer takes on the seller’s employment liabilities. The new regulations have taken a step in the right direction by assisting buyers in their due diligence enquiries: a seller must now notify a buyer of employee liability information at least 14 days before the sale. However, the new regulations still do not assist buyers who wish to harmonise the contracts of their current and new employees following a transfer. In fact, the new regulations created a new category of claim (where the transfer involves a substantial change in working conditions to the material detriment of a transferring employee), exposing buyers to even more risk. The new regulations did not go down well with insolvency practitioners either. The Association of Business Recovery Professionals immediately criticised them on the basis that they were too vague as to which UK insolvency proceedings they applied. The Insolvency Service later published guidance, setting out its view on how the new regulations applied to different insolvency proceedings. Unfortunately, the guidance specifically stated that it was not an authoritative interpretation of the regulations; this was to be given by case law over time (cue yet more TUPE related claims before the employment tribunals). Understandably, this is far from ideal, especially for insolvency practitioners who could take on personal liability for employment contracts. Fraud Act 2006 As we report in this issue, the Fraud Act 2006, which received Royal Assent in November, will come into force in January 2007. Industry response to the Act has been positive, with any short-term costs (such as training staff) being seen as worth the long-term benefit. Legislative and Regulatory Reform Act 2006 This little-reported piece of legislation, which also received Royal Assent in November, could have a significant impact in years to come. It extends the Government’s power to make changes to the statute book by simplifying legislation and implementing Law Commission recommendations, without having to go through Parliament. The stated purpose of the Act is to enable Ministers to remove or reduce regulatory burdens but, understandably, civil liberties groups see the Act as a significant threat to Parliamentary democracy. Whatever your views on the political significance of the Act, the practical consequence is that the Government is now in a position to introduce more legislation than ever before. And in 2007…. So, that was 2006. Apart from implementation of the Companies Act 2006, what can we look forward to in 2007 and beyond? » The Corporate Manslaughter and Corporate Homicide Bill is currently before Parliament (see Issue 6). » The Insolvency Service is carrying out a review of insolvency secondary legislation which will result in new Insolvency Rules and Directors Disqualification Rules applying, probably, from April 2008 (see Issue 5). » The EC Directive on the share capital of public companies which, amongst other things, will make it possible for public companies to offer financial assistance for the acquisition of their own shares, must be implemented by 15 April 2008 (see Issue 4). » The EC Directive on annual accounts which, amongst other things, changes the thresholds for qualification as a small or medium-sized company, must be implemented by 5 September 2008 (see Issue 4). As usual, we will keep subscribers updated on these, and other company law developments, throughout 2007 via these newsletters and our online updating service. |
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