In this eNewsletter:

• Major changes to company law
• New duties for directors
• Claims against directors
• Protecting directors
• Other aspects of the Act 
• Next steps

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Email:
bruce.farquhar
@andersonstrathern.co.uk

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@andersonstrathern.co.uk

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Major changes to company law

The new Companies Act will introduce the biggest changes to the legal regime affecting UK companies for over 20 years.

Most of the key changes of the Companies Act 2006, will come into effect from 1 October 2007 or 1 October 2008.

New duties for directors

The stated purpose of the Act is to simplify and streamline the operation of private limited companies in the UK but it will also introduce significant new duties on directors of companies. In particular, directors will now have clear statutory duties to:

• act within their companies' powers;
• promote the success of the company for their shareholders' benefit;
• exercise independent judgement;
• exercise reasonable skill, care and diligence;
• avoid conflicts of interest;
• not accept benefits from third parties; and
• declare interests in proposed transactions

Claims against directors

It is feared that these new duties on directors together with new rights for shareholders to sue directors through derivative actions could greatly increase the number of claims to which directors will be exposed. To avoid this scenario, it will be critical that companies keep clear notes of the reasons why their decisions have been reached and of any connections their directors may have with the business in question.

In addition to this, from 1 October 2007, four types of transactions involving directors will require the approval of members, namely: long-term service contracts; loans, quasi-loans and credit transactions; substantial property transactions; and payments for loss of office.

 

Protecting directors

It would be prudent to introduce new forms of resolutions which show compliance with the duties which are to be introduced, and for those running meetings to have a clear understanding of the issues which can give rise to problems. Records should be kept of final conclusions and relevant preparatory papers. As a rule of thumb, decision recording should be proportionate to the importance of the decision being taken.

At Anderson Strathern LLP we have prepared new model board minutes to be used by companies together with company directors’ checklists and briefing notes. We can also offer targeted seminars for your company and its directors and other key decision makers. Attendance at such seminars will be an invaluable step towards demonstrating that your company's directors have taken their responsibilities under the new legislation seriously. Best practice is an evolving concept and therefore procedures and systems should be kept under review.

Other aspects of the Act

There are a number of areas where the new legislation does reduce the burden on companies. For example, private companies will no longer require to hold AGMs or to have their accounts approved by general meeting. There will be greater freedom to use email to communicate with shareholders and from 1 October 2008 the existing rules on financial assistance will be abolished for private companies.

Further details of the changes brought about by the Act can be found in our note, The A - Z of the Companies Act 2006. Read More >

Next steps

There are few companies that can afford to ignore the effect of this new legislation. For more details of the Act and a review of how it may affect your business please contact bruce.farquhar@andersonstrathern.co.uk  or ewan.regan@andersonstrathernco.uk