Your business and the Companies Act 2006
Further provisions of the Companies Act 2006 came into force on 1 October 2007 (with more to come on 6 April 2008 and 1 October 2008). Whilst some of the existing Companies Act 1985 provisions have been imported into the new Act largely intact, some of these recent changes are significant. We thought it might be useful to draw your attention to the following areas which you may now need to consider in the context of your company.
1. Directors’ duties
Four general duties are now imposed, i.e., for directors to act within their powers, to promote the success of the company, to exercise independent judgement, and to exercise reasonable care, skill and diligence.
There are further factors which must be considered as part of the duty to promote the success of the company, such as the company’s reputation and impact on the community. These considerations are not supposed to impose new duties, but instead express what is already good practice. You may, however, wish to specifically reflect these considerations in board minutes and company policies.
2. Members’ rights
Written resolutions now require a majority vote (51% or 75% as applicable) rather than unanimity, making them much easier to use. Extraordinary and elective resolutions are no longer recognised by statute, and members can nominate others for enjoyment of members’ rights.
3. AGMs
The default position for private companies is now that an AGM is not required, but may be called by 10% (or in certain cases 5%) of shareholders. The notice period where an AGM is called is reduced to 14 days. There are also changes to the AGM requirements for public companies.
Your company’s Articles of Association may already include some of these options regarding resolutions and meetings, and in any case your current Articles will remain in force if no action is taken. However, companies now have the option of amending their Articles in the usual way to adopt the above measures, many of which are aimed at streamlining company administration. The final text of the new model Articles of Association is not yet available but a draft has been circulated, and further information will follow as implementation continues.
If you have not already done so, you might also wish to think about increasing your company’s use of electronic communications, which is possible under new provisions in force since January 2007.
4. Derivative actions
These actions are now open to members who can seek permission from the court to bring a claim against a director or other person on behalf of the company. There are a number of hurdles to bringing such a claim and it is not expected that there will be a high number of cases, but you may wish to review your company’s insurance coverage in terms of legal costs.
Further significant provisions will be implemented in the coming months, with almost all of the Companies Act 2006 coming into force by 1 October 2008. These further provisions include directors’ duties in relation to conflicts of interest, changes to the rules about share capital and financial assistance, and changes to company formation. You might want to think about some of these matters ahead of time so as to make any changes as seamless as possible.
