Changes to Company Law

On 1 October 2008 the next phase of implementation of the Companies Act 2006 will take place. A number of significant changes will come into force on that date and these are outlined below.

Directors' Statutory Duties
There will be further additions to statutory directors' duties:

Avoid conflicts of interest
Directors must avoid situations in which they have or could have a direct or an indirect interest which conflicts or may conflict with the company's interests.  The board of a private company incorporated on or after 1 October 2008 may now authorise a conflict provided there is nothing in the company’s constitution to invalidate this authorisation. In relation to private companies which existed prior to 1 October 2008, conflicts may be authorised by a resolution of the members provided there is nothing in the articles of association that prohibits this.  In relation to public companies, the articles of association must specifically permit the directors to authorise the proposed matter.

Declare any interest in a proposed transaction or arrangement
Each director is required to declare to all other directors the extent and nature of any direct or indirect interest in a proposed transaction or arrangement with the company.  The declaration must be made prior to the company entering into the transaction.

Not to accept benefits from third parties
A director is prohibited from accepting a benefit from a third party which is received as a result of him being a director or as a result of or him doing or refraining to do anything as a director.

Financial assistance
The long awaited abolition of financial assistance and the related "whitewash" procedure will take place.

Unlike the 1985 Act, the Companies Act 2006 will not prohibit a private company from giving financial assistance for the acquisition of its own shares.  The rules will not change for public companies.

A saving provision (in the Fifth Commencement Order) makes it clear that existing common law rules do not have the affect of reinstating the prohibition, however, it also points out that care should be taken as there are circumstances where a transaction involving financial assistance is still unlawful due to common law rules of capital maintenance.

Capital reductions
Private companies will have the option of reducing their share capital by special resolution supported by a solvency statement made by the directors.  Currently the only means of capital reduction is by a court approved method.  The resolution and solvency statement, and an additional directors’ statement, will have to be submitted to Companies House.

The solvency statement route provides a simpler and cheaper means for a company to reduce its share capital.

Control of political donations and expenditure, provisions relating to an independent candidate
The control of political donations and expenditure by companies that already applied to political parties and organisations has been extended to include independent candidates.    

Changes to the Annual Return requirements
Annual returns made up to a date on or after 1st October 2008 will contain reduced information on the company’s shareholders.  Private and non-traded public companies are only required to provide names of shareholders, not addresses. Traded public companies are required to provide names and addresses for those shareholders holding at least 5% or more of any share class.

 A company may submit an annual return made up to a date on or after 1st October 2008 in order to take advantage of the reduced disclosure requirements.  A company can make its annual return up to any date it chooses, as long as it isn’t later than the anniversary of the previous annual return.

Limited Liability Partnership changes to bring accounts content in line with the company regulations
New Limited Liability Partnership regulations will be made applying the accounting and audit provisions of the Companies Act 2006 to LLPs.  There will also be separate regulations on the form and content of accounts, in line with the Companies Act regulations.  These will come into force for accounting periods starting on or after 1st October 2008.

Objection to Company names
A new company names adjudication procedure has been established.  Complaints can be made by any person or company to the new, and independent, Company Names Tribunal, which will be based at the UK Intellectual Property Office. Companies House will remain responsible for ‘too like’ and ‘same as’ objections.

Trading disclosures
New regulations will come into force governing the display and disclosure of a company’s details at the company’s premises and in communications (name, registered office etc). These are largely a restatement of existing law, however, some minor changes have been brought in.

Dormant companies will be exempt from the requirement to display the company name at its registered office and its inspection place from 1 October 2008.

From 1 October 2008 minor variations in the form of a name will be permitted (provided there is no risk of confusion) including the case of the letters, the use of punctuation, accents, etc and formatting.

Corporate directors and under-age directors
From 1 October 2008 every company will require to have at least one director who is a natural person (there will be a grace period until October 2010 for any company that only had corporate directors on 8 November 2006 - the day the Companies Act received Royal Assent).

Also there will now be a minimum age for a director of 16 years old. Existing under-age directorships will cease automatically and the company will be required to amend the register of directors to reflect the fact that the appointment has ceased. This rule will apply retrospectively, Companies without an eligible director will be in default and will need to appoint at least one director to remedy the position.

Further information
If you require further information on the forthcoming changes, please contact your principal contact Bruce Farquhar or Ewan Regan.

This bulletin is for general information only and does not constitute legal, investment or other professional advice. Please contact us should you require advice on any particular legal issue. Anderson Strathern LLP accepts no responsibility for any loss that may arise if reliance is placed on any information or opinions expressed in this bulletin.