By the time you read this we will already have passed three key implementation dates for the Companies Act 2006 (the ‘2006 Act’): 20 January 2007; 1 October 2007; and 6 April 2008. It is perhaps all too tempting to pat yourself on the back, say “job well done, I’m up to speed with these changes” and start focusing on other things.

Sadly this is not a recommended option, as so much of the 2006 Act is still to be implemented.  The remaining key dates are 1 October 2008 and 1 October 2009.  The good news is that many of the changes coming into force on 1 October 2008 are actually designed to (and indeed should) make life easier for many companies.  In this article we shall examine what these changes are, having first very briefly reminded ourselves of the changes that have just (on 6 April) come into force.

April 08 changes

These included:

The changes for this October

Moving on to this October, there are some fairly eye-catching changes that are coming into force, many of which, particularly for private companies, provide flexibility in key areas.

Three remaining directors’ duties

The three remaining directors’ duties will be coming into force on 1 October 2008. These are:

• the duty to avoid conflicts of interest;
• the duty not to accept benefits from third parties; and
• the duty to declare any interest in proposed transactions or arrangements with the company.

Under the first duty, a director must avoid situations in which he has or can have a direct or indirect interest that conflicts with or may conflict with the company's interests. This applies in particular to the exploitation of property, information or opportunity (whether or not the company could take advantage of the property, information or opportunity). This duty does not apply to a conflict of interest arising in relation to a transaction or arrangement with the company - these do not have to be authorised by either the members or by the board and instead directors must declare their interests in transactions or arrangements with the company under different sections (depending on whether the transactions are proposed or existing). The duty is not infringed if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest, or if the matter is authorised by the directors.  This last point is the key change and certain requirements must be met – for example, the votes of the director in question or any other interested director cannot be counted, and the company’s constitution must allow for it. 

Financial Assistance

Private companies will no longer be prohibited from giving financial assistance for the purchase of their shares.  This is a long-awaited change for many private companies.  Note that the repeal of the relevant sections in the existing Companies Act in relation to private companies applies in relation to financial assistance given on or after 1 October 2008 even if the shares in question were acquired and the relevant liability incurred prior to 1 October 2008.

All may not be as straightforward as many hoped, however.  It is thought that lenders who had relied on the whitewash procedure to focus directors' attention on the credit effect of financial assistance transactions, may now contemplate introducing provisions in their loan agreements prohibiting financial assistance without their consent.

Reduction of share capital

A new out-of-court procedure for a reduction of capital for private companies will be available from 1 October 2008.   All that will be required is a special resolution supported by a solvency statement.  Note, however, that a company using the new solvency statement procedure will not be able to reduce its share capital to zero. There is a requirement that, following such capital reduction, there must be at least one member of the company holding shares, which may only be one share but which are not redeemable shares.

Corporate directors and under-age directors

There will be a new requirement for companies to have at least one director who is a natural person (that is, an individual or a natural person who is a corporation sole). There will however be a grace period until 1 October 2010 for any company which did not have at least one director who was a natural person at the time when the 2006 Act received Royal Assent (8 November 2006).  Corporate directors will still be allowed but the new requirement will mean that there is an actual person who can be held accountable for the company’s failings.
 
As from 1 October 2008 the minimum age requirement for directors of 16 years will come into force.  For existing companies who have ‘under-age’ directors in place on 1 October 2008, such director will cease to be a director when the prohibition comes into force. The company must amend its register of directors accordingly but is not required to notify the registrar of the change. The registrar will be given the power to amend the register without a notification by the company of the director's removal but rather on the basis of information already held by the registrar.

Right to object to a company’s name

There will be a new right for any person (not just a company) to object if a company's name is the same as a name associated with the objector in which he or she has goodwill or where the name is sufficiently similar to such a name that it would be likely to mislead.

Trading Disclosures

The Companies (Trading Disclosures) Regulations 2008, made under section 82 of 2006 Act, will replace the relevant provisions of the Companies Act 1985 and the Business Names Act 1985 with effect from 1 October 2008.   The Regulations set out trading disclosures that must be made by a UK company at certain locations, in company documentation and on company websites. The regulations also require companies to respond to enquiries about where their company records are kept available for inspection.

Conclusion

Unfortunately, due to the staged implementation of the 2006 Act, it does seem impossible to turn attention away from it for long.  However, as is clear from the above, many of the changes coming into force this October are positive ones, although as ever it is important to understand the detail and the transitional provisions for existing companies. We shall be examining these in more depth in the next edition of Essentially Business and also in the third of our series of ‘Companies Act’ seminars which will be running in the Autumn.

© Davenport Lyons 2008 All rights reserved.
This document reflects the law and practice as at April 2008. It is general in nature, and does not purport in any way to be comprehensive or a substitute for specialist legal advice in individual circumstances.