The Companies Act 2006 (‘the Act’) represents a major overhaul and consolidation of existing company law.
A number of provisions came into effect when the Act was implemented in 2006. Other parts were implemented in October 2008. The remaining provisions came into force last month.
The majority of private companies will currently have Articles of Association that compliment the provisions of either the Companies Act 1948 or more likely, the Companies Act 1985.
The Act replaces the majority of the 1985 Act. It also introduces revised Articles of Association which reflect the changes made by the Act. However, if your company’s Articles of Association are adopted from the 1948 or 1985 Act they will not become invalid merely because of the introduction of the 2006 Act.
There are a number of changes that may be required to your company’s Articles in order to take advantage of the benefits implemented by the 2006 Act.
The main changes implemented by the Act consist of:
• The codification of existing duties imposed on directors;
• Relaxation of the rules relating to written resolutions so as to enable company decisions to be reached quicker;
• An increased use of e-communications so as to expedite the decision making process and ease the administrative burden of arranging meetings and proposing resolutions;
• A change in the rules relating to the reduction of capital. Companies are now permitted to reduce their capital without the need to apply to the Court;
• Directors are now able to allot shares without obtaining prior shareholder approval;
• Companies can now provide financial assistance for the purchase of its own shares;
• Subject to Court approval, shareholders can now bring actions in the name of the company against directors without the requirement to comply with strict conditions. Previously, shareholders would have to clear a number of hurdles before any action could be taken;
• Increased reporting obligations placed upon directors when filing their annual report;
• Company accounts must now be approved by directors prior to being filed;
• It is no longer necessary to employ a company secretary.
Company law legislation is notorious for being extremely complex. Companies can often be in breach of company legislation without realising.
The position for directors is even more onerous what with the codification of their duties and the increased powers available for shareholders to bring actions against them. Directors will need to ensure that they avoid any inadvertent breach of their duties.
Although the Act may have made a director’s position even more precarious, it has at the same time attempted to lighten the administrative burden of smaller companies.
We strongly recommend that companies review their Articles in order to check whether alterations are required to benefit from the changes introduced by the Act. Similarly, if directors or shareholders are unsure as to what the Act means for them then they should also seek guidance.
If you wish to discuss any of the above or perhaps arrange a meeting with a member of our business team then please contact Warren Rigg or Sean Spinetto on 01785 603060 or email business@pb4law.com
31 October 2009
