Article Story: COMPANIES ACT 2006: NEW PROVISIONS AFFECTING PRIVATE COMPANIES LIMITED BY GUARANTEE

Date: 05.10.07

NEW PROVISIONS FROM 1 OCTOBER 2007 AFFECTING PRIVATE COMPANIES LIMITED BY GUARANTEE

The following are the main provisions of the Companies Act 2006 which came into force on 1 October 2007, in each case with guidance about any action that needs to be taken now.

This is followed by a list of some of the other provisions of the Act which come into force in April and October 2008. More detailed guidance will be posted next year ahead of the implementation dates.

This note only gives guidance of a general nature and is not intended to constitute advice in any specific circumstances.  Please contact us if you require specific advice.

DIRECTORS’ DUTIES

·        New set of codified duties, still only owed to the company and not members/other stakeholders, so only the company can enforce (except through the new ‘derivative’ action which includes Court approval). 

·         New: Duty to promote the success of the company for members’ benefit (or in the case of companies not set up to benefit members, a duty to promote the success of the company in order to achieve its purposes) and to have regard (amongst other factors) to:

·                     Likely consequences of any decision in the long-term 

·                     The interests of employees 

·                     The need to foster business relationships with suppliers, customers and others 

·                     The impact of the company’s operations on the community and environment 

·                    The desirability of the company maintaining a reputation for high standards of business conduct 

·                     The need to act fairly as between members

·        For financial years starting on or after 1 October 2007, Directors’ Reports must include a ‘Business Review’ showing members how the Directors have performed this new duty (applies to all companies except Small companies).

Recommended action:

·         Provide briefing to Board members on the new legal responsibilities. 

·         Review Board decision-making processes to ensure that decisions are made having regard to the new statutory factors.

DIRECTORS SERVICE CONTRACTS

·         New: Members can request a copy of any director’s service contract on payment of a fee. 

·         New: Members’ approval is needed for any service contract of guaranteed duration of 2 years or more entered into on or after 1 October 2007. Previously only contracts of 5 years plus required members’ approval. 

·         ‘Service Contract’ includes contracts of service, contracts for services and letters of appointment to the office of director.

Required action:

·        Obtain members’ approval to any new service contracts of over 2 years’ duration which are entered into on or after 1 October 2007: approval obtained previously under previous law will suffice.  

·         Ensure procedures are in place for members to obtain copies on request.

 ENHANCED PROXY RIGHTS

·         New: Automatic right of all members to appoint a proxy to attend, speak and vote at a General Meeting (even where Articles prohibit this). 

·         Articles can extend statutory rights. 

·         New: All notices of General Meetings must include a statement in the required form informing members of their right to appoint a proxy.

Comment:

·         This gives increased powers to a dissatisfied minority

·      Companies may wish to encourage members to appoint the Chair as proxy but this cannot be mandatory. 

·         Organisations with large memberships may wish to review their structure to reduce the number of members.

Required action:

• Introduce required language in all Notices of EGMs and AGMs sent out after 1 October 2007 (even if Proxy voting is not permitted by the Articles).

 Recommended action:

• No need to change Articles to take advantage of these new provisions but Articles can be customised to provide (say) for longer than 28 days for members to respond to written resolutions.

ANNUAL GENERAL MEETINGS

• New: Private companies will no longer be required to hold an AGM every year.
• Companies whose Articles make AGMs mandatory (most do) must alter their Articles if the company wishes to dispense with the need for AGMs.

Recommended action:

• Each Board should decide whether to continue to hold AGMs. They can be useful as an opportunity to report to members and stakeholders on the company’s activities and to allow election/re-election of directors. 
• If Articles currently require an AGM (most will), the Articles will need to be changed if AGMs are to be dispensed with.

NOTICE-PERIODS FOR GENERAL MEETINGS

• New: The notice-period for all AGMs and EGMs is reduced to 14 days (even if a Special Resolution is to be passed), unless the Articles state otherwise. 
• Companies whose Articles call for 21 days notice for AGMs and Special Resolutions will have to amend their Articles to take advantage of the new 14 day notice period.

LAYING ACCOUNTS BEFORE GENERAL MEETINGS

• New: There is no longer a requirement (for private companies) that the Accounts be laid before members at a general meeting, unless required by the Articles. Members must still be sent accounts. 
• If the Articles specifically require the accounts to be laid before the company in general meeting (most will) then companies must amend the Articles to remove this provision in order to take advantage of the change. 
• Change applies to annual reports and accounts for financial years ending on or after 1 October 2007.

 ACCESS TO REGISTER OF MEMBERS

·         New rules apply for anyone inspecting or requesting information from the Register of Members.  

·        The request must now include the name and address of the person seeking access and the intended purposes.  

·         Companies then have five days to comply or apply to the Court. The Court will allow companies not to comply if access is not being sought for a proper purpose. 

·         Applies to all companies filing their annual returns made up to a date after 30 September 2007

ELECTRONIC COMMUNICATIONS (note: these provisions came into force in January 07)

·         The Act makes is easier for companies to communicate with members electronically. 

·         Companies still need to seek agreement from individual members to receive information by email. If a member does not agree or fails to respond, hard copies must be sent. 

·        Companies wishing to use website communications must pass a members’ resolution and to seek agreement of individual members. If a member fails to respond in 28 days, his/her consent is presumed. 

·         If an individual has opted out of website communications, the company cannot ask for his or her agreement again within 12 months. 

·         Companies which want to post material on their website must notify the individual members that the notice has been posted (either by email or hard copy). 

·        Members are entitled to hard copies on request even if they have consented to e-communications.

Recommended action:

·        Review Articles and members’ resolutions in place to ensure necessary powers are in place to use website communications.  

·        If powers already in place, ensure that provisions are wide enough to catch all electronic documents. 

·         Continue to seek consents from members to use e-communications.

PROVISIONS COMING INTO EFFECT IN 2008 (in brief)

From April 2008:

COMPANY SECRETARY

• Companies need no longer have a Company Secretary although they may continue to do so.

EXECUTION OF DOCUMENTS

·        Companies may execute documents signed either by two authorised signatories (directors or Company Secretary) or by one director in the presence of a witness.

AUDITORS: LIMITATION OF LIABILITY AGREEMENTS

·        Auditors and companies can enter into binding agreements limiting auditors’ liability for negligence, default or breach or trust or duty.

From October 2008:

DIRECTORS’ CONFLICTS OF INTEREST

·         New tougher rules on Directors’ conflicts of interest. 

·         Independent Directors are permitted for the first time to authorise a director’s conflict of interest.

MEMORANDUM AND ARTICLES OF ASSOCIATION

• In future the Memorandum will only contain the names of the subscribers and the Articles will become the only governing instrument.

 DIRECTORS’ ADDRESSES

• Directors will no longer have to provide their home addresses when they agree to become directors.

 COMPANY NAMES

• New right of objection to Registrar if a company name is the same as or misleadingly similar to a name in which the objector has goodwill.

Nicholas Sharp

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